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When Wise executed its highly anticipated dual listing on the Nasdaq, the financial media focused almost entirely on the superficial mechanics of the ticker tape. The opening price hit the screens, algorithmic trading systems adjusted to the new liquidity pools, and during the first few trading days, the share price immediately came under some structural selling pressure.

Short-term traders quickly pointed to the downward price action as proof that the payment sector is doomed and that Wise won’t be the exception spared by the market’s forces, but for those investors who ignore day-to-day market noise, the more insightful story was unfolding elsewhere. While the tape was flashing green (at first Wise’s stock shot up 7%) and red (before later declining for a couple of consecutive days), management was hosting a special call for analysts and owners.

It turned out to be the single most illuminating corporate presentation Wise has delivered, maybe in second place behind the landmark 2025 Owners Day – a high-substance, 120-minute masterclass packed with raw operational data and profound strategic disclosures.

Listening to a call like that requires a completely different analytical filter. If you only look at headline narratives or commentary driven by share price developments, it is easy to move right past the immense fundamental transformations occurring inside this business and the massive opportunity ahead.

“We believe our US listing will help us accelerate our mission, helping to bring more of Wise to everyone in the US, as customers and as owners.” - Company press release

“But in the context of the enormous size of this market, we’re really only starting to scratch the surface. We moved less than 5% of the money moved by people and less than 1% moved in the small business market. So this means that overall, we’re less than 1% of this enormous $43 trillion market of cross-currency transactions. And it also means that there’s a huge opportunity ahead of us. We’ve gone from 0, 15 years ago to now moving $0.25 trillion, but we are building this network and the apps to move trillions.“ - Special call transcript

The presentation was dense with subtle nuances, regulatory engineering details, and competitive dynamics that you can only truly appreciate if you have been tracking Wise’s global infrastructure build for years. And that’s what I’ve been doing ever since the company went public on the LSE in 2021. And the stock hasn’t moved anywhere since fwiw:

It is precisely this gap between superficial commentary and deep, operational reality that makes Wise arguably one of the most misunderstood, high-quality future compounder stocks in the entire global market right now.

To cut through the market skepticism and map out exactly where this business is heading over the next decade, I have broken down the 10 most critical insights from that special call that every long-term investor needs to internalize.

So let’s get right to it!

Disclaimer: I own Wise shares. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Insight #1 - More on the Stablecoin Disruption Risk

As described above, in my view, Wise remains one of the most deeply misunderstood high-quality companies in the global market today. Observers frequently look at the superficial layers of the business – treating it as just another sleek consumer remittance application that will bring take rates to levels where Wise will disrupt its own profit generation capabilities – while completely overlooking the monolithic, proprietary infrastructure humming beneath the surface.

"But if Wise keeps lowering prices, won't they run out of profit?"

Lately, especially in 2025, a new narrative has taken hold among skeptics looking to derail the investment thesis, and that is the supposed disruption risk posed by stablecoins. We have dissected this specific threat on the blog before, and I previously sat down to map out the mechanics of global liquidity in a comprehensive podcast episode with Mike from Money Flow Research. I’ll link all these pieces below:

• Will Stablecoins Kill Wise, Visa, and Mastercard? A Deep Dive into the Real Threat – and the Hype

• From Counter-Positioning to Being Counter-Positioned: Wise, Stablecoins, and the Psychology of Pivoting

• Link to Podcast Episode with Mike from Money Flow Research

The core argument from the bear camp is that blockchain architecture will render intermediaries obsolete by allowing value to transfer instantly across borders for fractions of a cent.

This narrative sounds convincing on paper, but it fundamentally misunderstands how global money movement actually functions. During Wise’s Nasdaq listing presentation, CTO Harsh Sinha directly confronted this crypto-native thesis, offering an analytical reality check that every serious investor needs to internalize.

Moving digital tokens between two crypto wallets is incredibly simple, yes, but the actual bottleneck of global commerce is not the token transfer itself. It is the friction of the real-world perimeter.

The true complexity of an international transaction is concentrated entirely in the on-ramp and off-ramp mechanics. People and businesses do not live, trade, or pay taxes in dollar-pegged digital tokens unless they happen to operate in a tiny, insular web3 sandbox.

As Harsh pointed out during the special call, “people and businesses want to use money in their local form.” They need to pay their local taxes in the United Kingdom or Brazil, settle domestic property transactions, and pay for university tuition.

“The real complexity arises when you actually have to on-ramp off-ramp these table cards to different currencies.”

This means that a stablecoin-based cross-border transaction is rarely a straight line. Instead, it typically requires a complex multi-leg execution sequence, often called a stablecoin sandwich. A user must convert their local fiat currency into a stablecoin, move the stablecoin across a blockchain network, and then convert that stablecoin back into the destination fiat currency via a local exchange or liquidity provider. Each leg of that sequence triggers financial crime screening protocols, compliance tracking, and foreign exchange conversion spreads. When you tally up the total structural friction, the economic argument for crypto rails completely falls apart. Harsh quantified this disparity clearly, noting that “most players in this space using the stablecoin route or stablecoin sandwich would charge anywhere between 100 to 200 basis points or more.”

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Compare that to Wise’s infrastructure, which charges a global average of just 52 basis points, and can drop below 20 basis points for large-volume corridors like Swiss Franc to British Pound transfers.

“… if you were to use stablecoins for doing cross-border payments, we’ve learned that the infrastructure we’ve built is by connecting local payment systems and direct connections that we’ve built, is is delivering a better price and speed than current stablecoin solutions can provide in this space. As we covered before, we charge 52 basis points on average.

And this is actually the global average. In some jurisdictions, if you were to move Swiss francs like CHF 1 million to GBP, we could get it as low as 20 basis points or even lower.”

The reason Wise can routinely outperform blockchain liquidity models is that it connects directly into domestic clearing systems. These massive local payment rails already process trillions of dollars in daily domestic volume, making them highly optimized and remarkably cheap.

Wise simply rides these massive local engines directly, bypassing the expensive intermediary spreads that plague crypto on-ramps.

The secondary argument for stablecoins is their utility as a capital flight hedge in inflationary environments. If you live in an economy where the local currency is rapidly losing purchasing power, holding a dollar-pegged digital asset is a rational defensive maneuver. Harsh acknowledged this macroeconomic reality, highlighting that “the Brazilian real has lost 15% against the USD in the last year,” which naturally drives local demand for foreign-denominated hedges.

Yet, the assumption that stablecoins are the only or best tool for this job is incorrect.

For the vast majority of non-crypto native users, a regulated multi-currency account is a vastly superior proposition. The Wise Account allows users to instantly hold 40 different fiat currencies at the click of a button, swap between them at the real mid-market exchange rate, and actively yield interest on those stable fiat balances without navigating the custody risks, smart contract vulnerabilities, or regulatory gray areas of decentralized finance. The company has already proven its ability to expand this framework into adjacent asset classes, having seamlessly integrated equities and money market funds into the core user interface over the past few years.

If stablecoins eventually achieve regulatory clarity and emerge as an efficient, compliant medium of exchange that users actively demand, Wise will simply add them to the platform as another standard asset class.

“But that said, that is the story today. We will continue to invest and see how this space evolves and as it evolves and if it does solve the problems for cross-commodity was for our customers in some regions, so maybe globally to make it cheaper and faster, we would, of course, use this technology. And the key thing here I want you to take away as the infrastructure we've built is extendable so that it'd be easy to add this.”

The primary takeaway for long-term owners is that Wise is completely agnostic to the underlying technology rail. Their proprietary software layer is entirely extendable. If public blockchain ledgers ever manage to outcompete domestic central bank rails on cost, compliance engineering, and raw speed, Wise will simply plug its global treasury engine directly into those networks.

Until then, their fifteen-year lead in regulatory licensing, domestic payment system access, and global compliance architecture remains an unmatched competitive moat. I am left with the exact same conviction that Harsh shared at the close of his presentation: “looking forward 10 years from now... I see most roads in cross-border payments leading to the Wise Infrastructure.”

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Insight #2 - Wise’s 15-Year Headstart?

When evaluating the global payments landscape, investors routinely crown Visa and Mastercard as the ultimate, untouchable monopolies.

It is an accurate assessment, of course. Two fantastic and incredibly “moaty” businesses. Their entrenched network effects are virtually impossible to dislodge.

Yet, I believe Wise is quietly emerging as another incredibly structurally advantaged, unassailable business in the payments sector – a sector not necessarily known for deep, impenetrable moats (with a few exceptions) – outside of those two card giants.

The source of Wise’s competitive advantage lies in the difficult-to-replicate process of bypassing the traditional correspondent banking system entirely. I think most investors glancing at Wise misunderstand this part.

During the Nasdaq presentation Q&A, David Scharf from Citizens Capital Markets pressed management on this exact topic, asking about the backlog of other remittance providers trying to replicate Wise’s feat of becoming a non-bank member of local domestic payment networks like ACH in the US, BACS in the UK, or Zengin in Japan.

“Wanted to follow up on the competition question. I mean at a high level, it seems like at the end of the day, the biggest differentiation for Wise as you bypass correspondent banks and became a nonbank member of individual payment networks. Can you speak specifically to first, just what are some of the hurdles and challenges for a nonbank to get accepted to a local payment network like ACH, BACS, [ Zengin ] And then secondly, since these payment networks by admitting you have sort of set the precedent for admitting a non-bank, are you aware of any kind of backlog of other remittance providers sort of seeking to ultimately embark on the same kind of integration.“

Founder and CEO Kristo Kaarmann’s response revealed the immense structural headstart Wise has and that younger FinTech upstarts AND legacy providers face. He noted that while Wise has been trailblazing through its first eight direct integrations, “in order to build up this network, it’s kind of not worthwhile doing just 2. You kind of need to invest behind doing the 30 or the 40 or the 50.”

This reality completely changes how we think about competition. Gaining direct access to a central bank clearing system as a non-bank financial institution is a regulatory and technical nightmare. It requires YEARS of intense local lobbying, securing bespoke financial licenses, maintaining pristine compliance frameworks, and embedding custom physical and digital infrastructure directly into domestic clearing houses. Doing this in a single country takes years of focused effort. To build a globally competitive cross-border network, a competitor cannot just succeed in Japan or the UK – they have to repeat this agonizing process dozens of times across the globe.

And importantly, as Kristo bluntly observed, “none has seriously started yet. So it’s hard for me to comment how far behind they will be. But it’s an enormous investment of time, efforts and the kind of expertise that you need to build up.” If no one “has seriously started yet,” Wise, which was founded in London in January 2011, has a 15-year headstart!

Insight #3 - On the SES Playbook

This fifteen-year operational lead is further reinforced by an exceptional economic model and corporate DNA known as the scale economies shared (SES) framework.

In a standard business model, growing transaction volumes should yield fatter profit margins as operating leverage dynamics are harvested that are promptly pocketed by executives and shareholders.

But that’s a rather vulnerable, and arguably short-sighted model to run a payments business as PayPal has learned the hard way. For years, PayPal’s branded checkout button commanded premium take rates – historically hovering around 2.9% plus $0.30 per transaction. This yielded strong margins because merchants paid a premium for PayPal’s trusted brand and built-in buyer base. However, aggressive unbranded competitors like Adyen and Stripe disrupted this dynamic. Instead of relying on a consumer-facing button, these processors embed directly into a merchant’s white-label checkout, driving massive volume by undercutting PayPal on price. Unbranded processing operates on razor-thin margins, often charging large enterprise merchants take rates well below 2%, and sometimes just basis points above interchange fees. To defend its market share, PayPal had to aggressively push its own unbranded solution, Braintree. But this strategic pivot forces a brutal trade-off: trading its high-margin branded volume for low-margin unbranded volume, effectively neutralizing the very operating leverage that executives and shareholders once took for granted.

And here comes Wise! Because Wise flips this script entirely.

They treat their massive infrastructure as a utility, systematically returning the cost savings achieved through higher volumes directly back to the customer in the form of lower fees and faster speeds.

This creates an agonizing dilemma for any potential rival trying to catch up. If a well-capitalized competitor decides to spend the next decade and hundreds of millions of dollars building direct integrations into global payment systems, they will eventually emerge into the light only to realize that Wise has already used its massive scale to cut global average prices down to 52 basis points or lower. The competitor, lacking Wise’s multi-billion dollar volume and the underlying infrastructure, regulatory licenses, etc., etc., to subsidize their fixed operational overhead, would have to price their transactions at a devastating loss just to match Wise on day one. Wise has effectively commercialized its cost structure into an aggressive defensive weapon, starving out potential rivals before they can even achieve the scale and the infrastructure buildout required to compete.

When you blend this scale economies shared flywheel with the sheer operational friction of global regulatory licensing, it becomes incredibly difficult to envision any traditional competitor ever catching up.

The structural moat is simply too wide. Barring a radical, black-swan technological regime shift – such as the stablecoin disruption risk we already debunked – Wise’s position at the center of global cross-border rails looks increasingly bulletproof.

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Insight #4 - Measuring the Scale Economies Shared Playbook: Nick Sleep’s Formula

To truly appreciate the strength of this operational framework, we might look past vague corporate buzzwords and actually measure the financial footprint of Wise’s economic engine.

Most of my readers are likely familiar with Nick Sleep, who famously generated a 921% return over 13 years at Nomad Investment Partnership by mastering a counter-intuitive concept: the aforementioned idea of scale economies being shared.

To quantify this dynamic, Sleep invented the robustness ratio, a metric designed to calculate exactly how much economic value a company passes back to its customers relative to the residual profit it retains for its own shareholders.

When Sleep ran these calculations on Costco, he discovered the wholesale retailer operated at a ratio of roughly 5:1. For every single dollar Costco kept in profit, it left five dollars in savings inside the consumer’s wallet compared to standard supermarket prices.

Costco is, in fact, considered the gold standard of scale economies shared.

Yet, Wise is weaponizing this exact formula today at an even higher clip, a reality made clearly measurable by the fresh financial disclosures from their recent Nasdaq listing.

When I first ran these calculations on Wise two years ago using their fiscal year 2023 disclosures, the results were staggering. Back then, the network saved its cross-border users £1.5 billion while retaining just £114 million in net income, yielding a jaw-dropping robustness ratio of 13.2. It was a textbook manifestation of a management team aggressively prioritizing multi-decade customer goodwill and terminal market share over short-term earnings optimization.

Updating the math with the preliminary fiscal year 2026 data allows us to see how that structural defensive perimeter is tracking. According to the listing presentation, Wise generated $3.3 billion in direct customer savings compared to traditional market alternatives.

Meanwhile, the business pulled in $2.5 billion in preliminary total net revenue. If we apply a net income margin of roughly 18% based on their first-half financial profile, Wise generated an estimated $450 million in full-year net profit for its equity owners.

Placing those updated metrics into the formula – dividing the $3.3 billion in quantified customer savings by the estimated $450 million in total shareholder profit – leaves Wise with a current aggregate robustness ratio of 7.33.

On a superficial level, an analyst might glance at this shift from 13.2 down to 7.33 and assume the company’s customer centricity is beginning to erode. That conclusion would be entirely incorrect, as it overlooks a massive structural evolution in the revenue mix.

Back in the 2023 fiscal year, cross-border payments was the undisputed primary engine of the firm (around 70% of total revenue). Fast forward to today, and core cross-border transaction fees have stepped down to comprise just 52% of the total revenue mix. The remaining 48% is now driven by the rapid scaling of adjacent ecosystem products, specifically international card services and net interest income from customer balances.

This product diversification means that looking at the aggregate company-wide net income distorts the true underlying efficiency of the payment rails. The $3.3 billion in customer savings highlighted by management refers specifically to the efficiencies achieved on the cross-border transaction side of the house. If we isolate that specific segment, assuming a standard 18% profit margin on cross-border operations and halving the retained net income to align with its 52% revenue contribution, the true transaction-level robustness ratio remains comfortably in the exact same double-digit territory as before.

Even if you choose to take the more conservative, consolidated company-wide ratio of 7.33, the underlying economic reality remains an absolute powerhouse. It demonstrates that for every single dollar Wise keeps in net profit across its entire global enterprise, it actively leaves more than seven dollars (or up to $14) in its users’ pockets.

The best part is just ahead — unlock the full post to continue (insights #5-10).

Investing is the one domain where better thinking compounds. If this intro gave you new insights, the full piece goes even deeper. A paid subscription is an investment in your decision-making process – and your returns.

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Sure, Mercado Libre is also facilitating transactions, but on top of this, it has built, and still is in the process of building, an entire digital economy through its synergistic pillars: the marketplace itself, the fintech platform Mercado Pago, the logistics network Mercado Envios, and the advertising arm Mercado Ads.

Together, these elements create a self-reinforcing flywheel that few companies in emerging markets can rival.

What fascinates me most is the sheer runway for growth. E-commerce penetration in Latin America still lags the US, UK, and China by roughly half, while a vast swath of the population remains underbanked or unbanked. Mercado Libre has positioned itself to capture both markets. Its fintech arm, Mercado Pago, leverages proprietary data and machine learning to extend credit to underserved populations – replacing the need for traditional collateral and turning users’ digital footprints into financial access. Meanwhile, the logistics network now reaches over 94% of the population in key markets, enabling deliveries that brick-and-mortar retailers struggle to match.

Moreover, Mercado Libre’s management doesn’t chase short-term profits. Their “time arbitrage” strategy is clear: invest boldly now to cement long-term dominance. The mantra “The best is yet to come” isn’t marketing fluff – it’s a strategic declaration.

This approach has allowed MELI to compound value at an extraordinary pace. Even with the current 37% drawdown and a stock that has essentially gone sideways over the past five years, …

… it’s remarkable to remember that over nearly twenty years, Mercado Libre has delivered an average annual return north of 24%, far outpacing global indices.

Yet dominance has its challenges. Chinese entrants like Temu and Shein are pressing into Brazil and Mexico with aggressive pricing and logistics models. Singapore-based Sea Limited's Shopee is also actively competing with Mercado Libre in Brazil. Furthermore, regulatory scrutiny is intensifying in key markets, particularly around anti-competitive practices and data governance. The platform, too, faces reputational pressure from counterfeit products and disputes over seller accountability.

Still, Mercado Libre’s network effects, data-driven lending, and logistical moat give it a resiliency few competitors can match, even in the face of Latin America’s macroeconomic volatility.

Did I catch your interest yet? This was only the start, as this post is a deep dive into Mercado Libre – not just as a stock, but as a business, a strategy, and a regional powerhouse. I’ll explore how it built its moat, how management thinks about growth, the risks it faces, and ultimately, whether the stock still deserves a place in a long-term portfolio.

Disclaimer: I own Meli shares. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

High-Level Thesis: “Bam Bam Bam Bam Bam”-90 Second-Hypothesis

As always, let’s return to Bill Miller, who has long emphasized that portfolio managers have ultra-short attention spans. He recalls how Peter Lynch would literally set an egg timer for 90 seconds during stock pitches – forcing the analyst to get to the point fast. As Miller put it: “The best thing to say is, ‘I want to talk to you about [stock]. It is at $X. Here are the five reasons why I think it is worth $Y.’”

Following that philosophy, I want to give you the quick Mercado Libre hypothesis. Admittedly, this one is longer, and I’m playing around with different formats here. I went with a similar format in my Nintendo write-up, where I try to condense down the core thesis to the most important pillars (I ended up putting together eight “BAMs” in this write-up; but one could certainly add more), and then couple this with a very thorough business model overview, thoughts valuation, plus other relevant findings.

Mercado Libre (Ticker: MELI) is trading around $1,556 as I type this, down another 4-5% after the 10% decline post Q1 results, as highlighted, even as net revenue growth reaccelerates to 49% (its fastest growth in four years). I believe it might be an interesting buy for the following five reasons:

• Bam 1 – Ecosystem Control: It controls Latin America’s leading integrated commerce and fintech ecosystem, creating a self-reinforcing flywheel where marketplace traffic feeds payments, and payments feed deposits and proprietary credit data, and traffic feeds its advertising business, and the generated profits are reinvested into its infrastructure and logitiscs.

  “Mercado Libre’s logistics network is one of our strongest competitive advantages. We deliver a world-class experience for buyers, driving greater traffic, conversion, and sales for sellers, along with higher NPS and improved cost efficiency. We continue to innovate and offer multiple delivery options, such as Next Day Delivery, Meli Delivery Day, and Meli Places“ - Company website

  

  

• Bam 2 – Riding the Secular Growth Runway: One of the most compelling reasons to consider Mercado Libre is the sheer size of the opportunity in Latin America. While e-commerce is a global trend, the region remains roughly half as penetrated as more mature markets like the U.S., UK, or China.

  

  Regional e-commerce penetration sits in the mid-teens as a share of total retail, compared with roughly 15-25% in the U.S. (depending on which analysis you look at) and over 35% in some Asian countries. Management believes the market could more than double – in fact, LatAm e-commerce has been the fastest growing market recently – as the region catches up, meaning the growth runway is enormous.

  

  The habit of online shopping itself is still in its infancy. The average American makes 41 online purchases per year; in Latin America, that number is just seven.

  “We have a once-in-a-generation opportunity to transform how hundreds of millions of Latin Americans shop, pay and access financial services. In commerce, the region is at an early stage of a shift that markets like the US are much further along. The average American makes 41 online purchases per year whereas the average Latin American makes just 7. Our own buyers average 11 – ahead of the region, but still a fraction of what we expect over time as online shopping becomes a habit for many more people.“ - Q1 Letter

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• Deep Dive: Tiger Brokers ($TIGR)

• Revisiting UP Fintech ($TIGR)

• 2026-01: Investing in China When the Rules Are Changing: Opportunity, Illusion, and Tail Risk

• The Most Absurd Stock Valuation in the Market Right Now?

• Robinhood’s Entry into Singapore: Assessing the Competitive Threat to Tiger Brokers and Futu

Despite all the noise surrounding anything China-related, and despite the underwhelming share price performance, I still believe it is one of the most inefficiently priced stocks in all of Asia right now.

Most investors see a volatile fintech play. The “Robinhood of Asia,” which completely misrepresents the business we are looking at.

I see something else entirely. A brief discussion in our community this morning sparked a new perspective for me, which I wanted to write about.

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Tiger being a prime takeover target at a roughly $1B market cap has crossed my mind before. But today, for some reason, I was immediately reminded of a valuation framework I applied to Edenred recently (in the article linked below; that buy worked out quite well from those levels so far).

In that analysis, I argued the market was completely ignoring the replacement cost of the underlying network (merchants, users, corporate clients).

It turns out that when you apply that same logic to Tiger, the math becomes similarly impossible to ignore.

This is not a traditional discounted cash flow exercise. It is a look at what the business is actually worth to a strategic buyer today. It’s another lens to illustrate the massive mispricing in Tiger’s stock.

If a massive financial institution wanted to replicate Tiger’s footprint in Singapore or Hong Kong, they couldn’t just snap their fingers. They would have to spend a lot of money (and I’ll share my best estimate in this analysis). They would have to fight for every single user.

This replacement cost lens provides a massive, invisible floor for the stock that the current market price seems to completely disregard. I also looked at churn and valued the Up Fintech funded account base on an LTV basis. This was fun. I hope you enjoy the analysis.

Disclaimer: I own a lot of UP Fintech stock (relative to the rest of my portfolio). The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

If you’re unsure about what you get, here’s an overview of some of the companies we covered in a little over a year:

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The acquisitions of foodpanda Taiwan and Stash Financial were both announced in Q1 2026, but if you check the latest Q1 earnings, you won’t see these deals reflected anywhere in revenue yet.

Both are still awaiting regulatory approvals, and Grab categorizes them as “planned acquisitions” in the earnings report; and thus, they are also not reflected yet in the full-year 2026 revenue guidance of $4.04B – $4.10B.

At first glance, it’s tempting to ignore these deals when thinking about Grab’s valuation. After all, the revenue hasn’t hit the books, and the balance sheet hasn’t felt the full impact – and what if they won’t be approved by regulators in the first place? In 2025, Uber ended its ambitions of acquiring Delivery Hero’s foodpanda in Taiwan, roughly three months after Taiwan’s antitrust regulator blocked the deal (citing competitive issues).

But that would miss the bigger picture. As investors, we are required to project the future, and each acquisition adds a meaningful slice of revenue and, in the case of Stash, a high-margin, subscription-based business that could reshape how to think about Grab’s overall revenue, margin, and growth profile.

The numbers tell part of the story. Foodpanda Taiwan closed at $600 million in cash and delivered roughly $1.8 billion in 2025 GMV.

Stash, with a 50.1% stake priced at $425 million, manages over $4 billion in assets under management.

Both deals are sizable, but the more interesting question is what they contribute to Grab’s future revenue once fully integrated.

This is what I was thinking about over the past weekend, and I put together this write-up. Because by ignoring these acquisitions, the market could be underestimating the scale and quality of revenue that’s about to hit the company – very soon!

In the sections that follow, I’ll break down the projected revenue contributions, how deal-related cash outflows affect Enterprise Value estimates, and how to think about Grab’s valuation after making some key adjustments.

Via the link below, you get access to a rare 20% discount on the annual plan (limited to the first 5 who take it). The 20% discount is then locked in forever, meaning it applies to all future payments as well.

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The full story starts here:

The rest of this post covers TAM penetration and market share dynamics, the identification of key growth drivers going forward, and two valuation approaches. If you’re serious about sharpening your investing edge, the full post (and all my previous premium content, including valuation spreadsheets, deep dives (e.g. well-known mid- and large caps such as LVMH, Duolingo, Meta, Edenred as well as more hidden gems such as Tiger Brokers, Digital Ocean, Ashtead Technologies, InPost, Timee, and MANY more) and powerful investing frameworks are just a click away. Upgrade your subscription, support my work, and keep learning.

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Imagine two Harvard Business School students, sitting together, brainstorming ideas that would go on to reshape the landscape of Southeast Asia’s transportation, food delivery, and financial services.

In 2012, Grab was born from a simple, but ambitious business plan aimed at tackling one of the most unreliable and unsafe taxi systems in the world – Malaysia’s. Fast forward to today, and Grab has evolved from that small idea into effectively the “operating system” for daily life in (most of) Southeast Asia.

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And Grab is not just another app. In Southeast Asia, Grab is more than a name – it’s become a verb for many. People say, “It’s raining; let’s just Grab to the mall instead of walking” or “I’m too tired to cook, should we Grab some Thai food?” without thinking twice. And it doesn’t stop there – Grab has mastered the art of creating habits, seamlessly integrating itself into the daily lives of millions of people who now rely on it for everything from getting from point A to point B to paying bills to online shopping.

Grab’s story is also a survival narrative that most tech companies would envy. In 2018, Grab managed to outmaneuver the global giant Uber in its home region and, eventually, when Uber basically gave up, acquired Uber’s Southeast Asian operations in a unique deal. That was a pivotal moment in Grab’s history, solidifying Grab’s dominance and ensuring that Uber’s exit from Southeast Asia would make Grab the undisputed leader in ride-hailing and delivery services.

Fast forward to 2025, and Grab hit a major milestone: profitability. After years of burning through capital in pursuit of growth, Grab reached its first full year of net profit in 2025 – $200 million in the black. This marks a significant inflection point, where the company is transforming from a “growth-at-all-costs” startup-like-business into a more disciplined, profitable growth powerhouse with a clear path to long-term value creation.

But here’s the thing: Grab’s story is far from over. In fact, despite its massive scale already – Grab is a multi-billion-dollar company today –, the company is still just scratching the surface. Grab’s Monthly Transacting Users (MTUs) currently represent just 6% to 7% of the Southeast Asian population. That means there’s a huge growth runway ahead – roughly 94% of the market is still untapped.

What’s even more exciting is Grab’s ecosystem flywheel. About two-thirds of Grab’s users engage with two or more services, and for those using three or more services, the one-year retention rate is an impressive 88%. When customers stay, they not only use more services, but they spend more, too. This is a growth driver that keeps feeding itself.

And then there’s Grab’s cutting-edge use of AI-driven efficiency. By utilizing proprietary AI models, Grab has been able to double its revenue from 2022 to 2024, all while keeping headcount flat. Over 90% of mobility rides are now dispatched using AI, showcasing just how much the company has automated its operations.

On the financial side, Grab has successfully expanded into digital banking. In just three years, Grab amassed 7.4 million deposit customers across its three digital banks, and its loan portfolio crossed the $1 billion mark in 2025 and is expected to exceed $2 billion by 2026 year-end.

And as if all of this wasn’t enough, Grab is setting its sights on global expansion. In early 2026, it completed the $600 million acquisition of foodpanda Taiwan, signaling the company’s intention to push beyond Southeast Asia and tap into new, high-value markets. This marks the first major step in Grab’s journey toward becoming a truly global player.

Of course, this is just the tip of the iceberg. Grab is positioning itself for the future with ambitious plans around autonomous vehicles (AVs) and scaling its financial services. The company is constantly innovating, finding new ways to integrate its services and make the lives of its users easier and more connected.

But what does this mean for investors? Can Grab sustain its growth? What challenges lie ahead? And most importantly, what kind of valuation can you expect as this story unfolds?

As you can tell, Grab is a fascinating business to dive into. So let’s do exactly that and dive deeper into Grab’s history, business model, management team, moat stack, its future, and the growth drivers that will continue to propel this Southeast Asian juggernaut forward.

Are you excited yet? Let’s dive into the first part (11,500 words) of this deep dive.

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Disclaimer: I own Grab shares. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

High-Level Thesis: “Bam Bam Bam Bam Bam”-90 Second-Hypothesis

As always, in the style of legendary investors like Bill Miller and Peter Lynch, I’m attempting to give you the quick 90-second rundown on Grab Holdings (GRAB) – what’s the investment hypothesis (which we are then going to test throughout this deep dive?

Right now, the stock trades around $3.6, a significant pullback from its 2021 debut. While that might sound concerning, the real story lies in the business transformation that’s been happening under the hood (i.e. not reflected in the share price).

Here are the five reasons why I think Grab is an interesting opportunity:

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On one hand, the latest results in Grab posted (Q1 of FY26) reveal a business that is firing on all cylinders, delivering a massive $120 million profit for the period.

“Q1 is off to a fantastic start for us across all the financial fundamentals of our business.“ - Q1 Earnings Call

On the other hand, a sudden political intervention from Jakarta and a bruising regional oil shock have created near- and medium-term challenges.

President Prabowo Subianto’s announcement of a commission cap on ride-hailing services – effective immediately and specifically targeting the “ojol” motorcycle sector – briefly wiped 7% to 8% off the market capitalization as the news broke. When you combine that with a fuel crisis that saw prices spike sharply across the region in March, the bearish narrative had plenty of ammunition.

Market volatility is nothing new for Grab shareholders. If you look at the historical chart, the story is one of persistent struggle against gravity. We are, in fact, currently hovering around a critical support line that has been tested repeatedly over the last twelve months.

The technical picture remains bleak for long-term holders. A negative five-year CAGR is a tough pill to swallow for anyone who bought into the initial listing hype.

However, price and value are frequently distinct entities. While the stock initially buckled under the weight of the Indonesian news and the fuel headwinds during last week’s trading sessions, today’s pre-market reaction – up roughly 2% – suggests a more nuanced interpretation might be beginning to take hold.

This feels like a defensive posture. It is the sound of investors weighing a localized regulatory headwind and a short-term margin squeeze against a group-level performance that, frankly, exceeded some investors’ expectations.

Before I peel back the layers of this quarterly report, I recommend revisiting my broader thesis. You can find the foundational details in my Grab Holdings Deep Dive Series (four parts), where I explore the business model, the ecosystem’s structural moats, and the long-term unit economics of the superapp model, the management team, and the stock’s valuation.

What I will discuss in this analysis is that, personally, I view the “Indonesia shock” and the fuel crisis not as terminal blows, but as “Darwinian filters.” The panic selling we saw earlier this week stems from Indonesia’s significant footprint. It accounts for roughly 21% of group revenue, with mobility specifically representing 36% of that total. A mandated drop in platform commissions from 20% to a mere 8% for motorcycle rides is, on the surface, a brutal hit to the top line. But as I’ll explore in the coming segments, the mechanical reality is far more complex.

I am increasingly convinced that we are seeing a “scale economies shared” business in the making. Much like the regulatory shifts that have historically impacted companies like Edenred, these interventions – alongside the exogenous pressure of rising fuel costs – often end up entrenching the dominant player. When margins are squeezed by decree or by the pump, only the most efficient, best-capitalized, and technologically superior operators survive.

The question is whether the market can look past the immediate revenue “shock” and see the reinforced moat being built underneath. I think we are seeing a fundamental decoupling of operating results from share price sentiment.

I find myself surprisingly relaxed. The runway is long. The flywheel is accelerating. And as we transition into the granular details of the Q1 results, I want you to keep one thought in mind: in a world of 8% commission caps and expensive fuel, the only thing that matters is who has the lowest cost of operation. Right now, that is Grab.

Disclaimer: I own Grab shares. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Q1 2026 Highlights: Seventeen Quarters of Momentum

Usually, the first quarter in Southeast Asia is a period of “holiday hangovers” where the festivities of Lunar New Year and Ramadan dampen both delivery demand and driver availability.

“… the confluence of Lunar New Year and Ramadan within the first quarter, both in the first quarter this year, creating acute supply pressures as usual during those 2 festive periods.“ - Earnings Call

Yet, the latest Grab results tell a different story.

In Q1, Grab reached an all-time revenue high of $955 million, a 24% leap year-on-year (19% YoY on a constant currency basis) that suggests the platform is still finding new pockets of demand.

Group MTUs increased both YoY (16%) and QoQ to 52 million.

In addition, we are looking at the seventeenth consecutive quarter of Adjusted EBITDA growth. This is a testament to a compounding machine that has finally learned how to generate profits.

“As we look ahead to the rest of the year, we remain committed to delivering durable, profitable growth while standing shoulder-to-shoulder with our communities — leaning deeply into AI to outserve our users with hyper-personalized experiences, while simultaneously unlocking more sustainable earnings opportunities for our ecosystem partners.“ - Anthony Tan

Grab posted $120 million in profit for the period. The business is now self-sustaining. It generated $98 million in Adjusted Free Cash Flow this quarter alone, pushing its trailing twelve–month total to a very healthy $489 million (remember that management aims for $1.2 billion in FCF by 2028, so we’re very well on track).

For those of us who remember the days of billion–dollar annual burn rates, this feels like a historical pivot point.

This profitability is not a result of “starving” the ecosystem. On the contrary, user engagement is at record levels. As mentioned, Monthly Transacting Users (MTUs) grew 16% to 51.6 million, and the On-Demand GMV accelerated to $6.1 billion.

I find the segment–level efficiency particularly revealing. In the Deliveries division, GMV reached $3.9 billion despite the festive season. This was driven by a clever “barbell” strategy. On one end, affordability initiatives like Saver Deliveries and Group Orders brought in the volume. On the other hand, the segment’s Adjusted EBITDA margin improved to 2.3% of GMV (from 2%). It seems like they are capturing the budget–conscious user without sacrificing the overall margin profile.

Mobility followed a similar path, with GMV reaching $2.2 billion. Interestingly, transactions grew faster than GMV at 28%, indicating that the service is becoming more accessible and high–frequency rather than just more expensive.

They are maintaining a steady 8.9% Adjusted EBITDA margin here, even while navigating the sharp regional fuel crisis that could have easily derailed a less efficient operator.

On the autonomous vehicle side of things, Grab is clocking 40,000 autonomous kilometers in a controlled Singapore residential estate, learning how to integrate hybrid fleets of human and AI drivers. They want to be the most experienced operator in Southeast Asia, ready to plug in any AV software player when the technology and the regulators are finally ready. However, as noted on the earnings call,

“… the adoption of AVs in Southeast Asia remains nascent. We see governments and regulators taking a measured approach in implementing AVs, which we believe is the right approach for our region. We will continue to incorporate AVs in our platform at a pace that reflects the trust communities place in us and our emphasis on customer safety. To be clear, we do not expect anyone to be able to deploy impactful disruption to our human driver network in the near future.“

If there was a “shock” this quarter beyond the Indonesian regulation, it was the explosive growth of Financial Services. The $1 billion milestone in quarterly loan disbursals is hard to ignore.

That is a 67% year-on-year increase.

More importantly, the Gross Loan Portfolio has swelled to $1.4 billion – even though QoQ growth was more modest – while credit discipline and credit quality actually improved. They are lending into their own ecosystem – to drivers and merchants, and consumers (app users), all of which they already know – which creates a massive information advantage for their underwriting AI.

According to Grab’s management team, “more than 1/3 of that incremental revenue dropped straight to the bottom line for Financial Services, demonstrating that operating leverage that we've been speaking about.“

So this segment is on a clear trajectory to break even in the second half of 2026.

“We also reiterate our expectations to exit 2026 with a Gross Loan Portfolio of over $2 billion and achieve Segment Adjusted EBITDA breakeven in the second half of 2026 for the overall Financial Services segment.“ - Earnings Call

It is becoming a legitimate third pillar for the group, not just a loss–leading side project.

Furthermore, management is increasingly talking about the “Grab Intelligence Layer” as their ultimate competitive moat – 20 billion transactions of historical data built over 14 years are hard to replicate.

“We capture highly localized real-time data on how over 50 million users and partners interact across 8 markets […] We feed these multimodal signals, from hyperlocal mapping to in-store payment terminals, into our AI Intelligence Layer to optimize our marketplace efficiency, from dynamic pricing to last-mile routing. Crucially, we paired this data advantage with our massive through physical fulfillment network. That closed loop system or ecosystem is our biggest competitive moat, which is why our AI investments translate directly into measurable financial outcomes.“ - Earnings Call

For instance, consider the “Turbo” mode for drivers. Those who opted into this AI–powered optimization saw a 23% uplift in earnings per hour. It is a simple equation: more efficient routing means more jobs per hour, which protects driver livelihoods even when fuel prices are at record highs (here Grab tried to cushion the impact by deploying targeted fuel rebates and proactively engaging with regulators across their markets).

“This has contributed to Mobility transactions growth outpacing Mobility GMV growth, with transactions up 28% YoY.“

On the fuel crisis subject, to provide some more context, management also said the following on the call:

“In the medium term, we are committed to accelerate the EV transition to reduce our driver partners exposure to fuel price volatility. So for example, in Thailand and Philippines, we have a drive-to-own program that connects our drivers with OEMs like BYD and GAC, where we have deals of up to 70,000 vehicles available across 6 markets with accessing to financing so they can own those more easily.

In Vietnam, we have secured preferential charging rates also through our charging network partners, EBOOST and Charge+, which helps our drivers in the transition also. And finally, in Thailand, I am pleased to say that our total fleet supply has crossed 30,000 EVs on the platform and demand for those from consumers is also strong, where they can select that EV option, and that demand has grown by over 35% year-on-year. So this fuel crisis has become an opportunity in the sense that it helps us to accelerate that EV transition.“

For merchants, the AI Assistant is driving a 15% GMV uplift for those who engage with it.

The high-margin ad business is also developing favorably: average advertiser spend grew 44% YoY as merchants see increasing measurable returns. However, as @the_zack_zhu shared on X (see overview below), the number of active advertisers only grew 5%, and it remains to be seen whether Grab has already hit a structural ceiling or whether this is just a temporary slowdown (I’m leaning towards the latter).

Overall, Grab is “winning” because they are out-serving the competition by making the platform more profitable for the people who actually do the work.

The strategic horizon is also expanding. The acquisition of foodpanda’s business in Taiwan is a bold move into a high–ARPU market outside their traditional Southeast Asian stronghold. And importantly, the Q1 figures and the outlook do not include revenue from both the Stash and Foodpanda Taiwan acquisitions.

The outlook remains remarkably steady despite the near-term noise. Grab reiterated its full–year 2026 guidance, targeting revenue up to $4.10 billion and Adjusted EBITDA as high as $720 million.

As readers of my initial deep dive know, they are also putting their money where their mouth is with a $500 million share repurchase agreement.

“In March 2026, we entered into an accelerated share repurchase agreement and a contingent forward purchase agreement to repurchase $250 million and up to $150 million, respectively, worth of Class A ordinary shares, as part of our previously announced $500 million share repurchase programme approved by the Board of Directors in February 2026.“

At the same time, it’s important to note that nonetheless, the basic and diluted shares have increased both year-over-year and quarter-on-quarter.

However, management added some more nuance on this subject during the call:

“So a total of $400 million has been accelerated, which means only in the market for 5 to 5 trading days in Q1 itself. So you can’t look at it in isolation. Now both these programs are expected to be executed over the next 4 months. So I’ll share a lot more in the next quarterly earnings when we look at the Q2 results. Now in terms of share count, it would have amount to roughly around 2% of our total share count, which will more than offset for the dilution from stock-based compensation. So that’s how we’re viewing it. As a reminder, there’s still another $100 million left to go in the share buyback program, and we’ll continue to have discussions around capital allocations with our Board.“

The Indonesia Shock: Regulatory Caps and Its Implications – Is the Grab Thesis Now Broken?

Indonesia, one of Grab’s largest and most important markets, just threw a curveball at investors. In early May, the government introduced price caps on ride-hailing fares through Presidential Decree No. 27/2026, aiming to protect drivers and curb rising ride costs for consumers.

On the earnings call, management clarified that the regulations will specifically target the “ojol” (short for ojek online) motorcycle sector.

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Over the years, it has weathered near-bankruptcy, transformed from a niche card business into the world’s leading entertainment company, and solidified its place as a titan of the gaming industry.

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What’s most striking, though, is how Nintendo continues to reinvent itself while staying true to its core philosophy: long-term survival over short-term gains.

Fast forward to 2025. The Nintendo Switch 2, launched with skepticism from critics, has shattered all expectations. It has become the fastest-selling console in history – 3.5 million units sold within just four days, 15 million in six months.

This is a company that’s not just surviving but thriving, breaking records and pushing boundaries.

And of course Nintendo’s recent success is not just about the recent hardware sales records – if anything, hardware is the enabler of the broader Nintendo thesis –; no, Nintendo has become a self-funding marketing machine. The success of The Super Mario Bros. Movie, which grossed over $1.36 billion, directly boosted game sales, essentially turning its own movies into profit-generating advertisements.

This is the kind of business model that’s rare in any industry.

Perhaps most impressive of all is Nintendo’s $13-14 billion fortress balance sheet. With zero long-term debt and a robust cash position, the company has the freedom to weather any storm and invest in its future, whether that’s through new IP or expanding its already vast gaming ecosystem. Add to that its 400 million Nintendo Accounts, ensuring customer retention across platform generations, and the company is in a much stronger position than it was during the cyclical “boom-bust” hardware cycles of the past.

From a strategic point of view, Nintendo is also positioned well. While Sony and Microsoft continue to duke it out in the performance arms race, Nintendo has carved out a unique niche, competing on intuitive gameplay and portability, not raw hardware specs. This deliberate choice has given Nintendo a near-unassailable lead in the family-friendly gaming space, where it faces little direct competition.

In this post, I’ll explore how Nintendo’s unique approach to business, combined with its world-class intellectual property, gives it an edge that few companies can match. From the fastest-selling hardware in history to a growing digital ecosystem and unparalleled financial stability, Nintendo is shaping up to be one of the more interesting opportunities in the entertainment sector. What makes the setup especially compelling right now is the disconnect between the business and the stock. Despite the strong fundamental backdrop, the shares have recently seen a drawdown of roughly 50%, now trade about 40% below the level around the Switch 2 release, and have effectively round-tripped back to 2020 levels.

To me, that is exactly where things start to get interesting. So stick around – I’ll show you why I believe the market is missing the full potential of this global powerhouse.

High-Level Thesis: “Bam Bam Bam Bam Bam”-90 Second-Hypothesis

Nintendo is currently undergoing a massive growth inflection point that the market is still (or once again?!) mispricing as a standard, legacy hardware cycle.

“Case in point, this is now the fourth time this cycle that false Nintendo narratives have been proven wrong.“ - Ryan O’Connor

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I always spend a considerable amount of time tracking the prices of some of the world’s most dominant businesses that every once in a while trade at valuations that seem completely disconnected from their long–term earning power trajectories.

This post is a collection of my notes on five specific names that have moved to the very top of my watchlist. For those new here: I’m not interested in chasing temporary bounces or playing for a quick relief rally. Instead, I want to explore why the “competitive advantage period” (CAP) for these firms is likely much longer than a standard discounted cash flow model would ever suggest. If you follow the logic of the recent Mauboussin research on this concept, you know that the true value of an enterprise lies in the “how long” part of the equation – how long a company can maintain its return on capital before the inevitable regression to the mean.

Arguably, the current opportunity set is much broader than many macro and market commentators make it seem. It isn’t often that you get a chance to buy into fortress–like moats when the sentiment is this sour. Whether it is a luxury icon caught in a currency storm, a real estate gateway navigating a cyclical slump, or a mission–critical software provider being repriced as a commodity,

For the five names I’m presenting today, the aforementioned CAP period appears to be significantly underestimated by the current share prices. Hence, I believe the recent drawdowns might be offering a rare window for patient, long–duration capital and deserve your attention too.

Disclaimer: The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

#1 – Boston Omaha ($BOC)

Boston Omaha is a multi-segment holding company and capital allocator that functions like a heavy-duty train powered by three distinct locomotives: outdoor advertising, high-speed broadband, and surety insurance. Founded in 2015 through the recapitalization of a small real estate shell, the company has stayed remarkably disciplined. Its primary mission is simple. It aims to grow intrinsic value per share by deploying capital into asset-heavy businesses that generate durable, predictable cash flows. Think of it as a vehicle designed to compound wealth slowly but surely through essential infrastructure.

The competitive moats here are deeper than the current market price suggests. In the billboard segment, the moat is largely regulatory; getting permits for new signs is notoriously difficult, making existing faces valuable local monopolies. Meanwhile, the broadband division focuses on fiber–to–the–home in underserved markets, creating a “first–in” advantage that is incredibly hard for competitors to displace economically. Despite these defensive qualities, the stock has been hit hard. It currently sits roughly 70% below its all-time highs reached in 2021. For a business focused on long-term compounding, this level of detachment from previous valuations is striking.

Recent developments suggest management is leaning into this disconnect. I’m particularly focused on the $30 million share repurchase program adopted late last year–a significant move for a company that historically preferred using its cash for new acquisitions.

“Our approach will be opportunistic and disciplined: we will only buy back shares when we believe they trade significantly below our conservative estimate of intrinsic value, and when doing so makes more economic sense than deploying capital into our existing businesses or potential acquisitions. Repurchases are also dependent on our excess cash availability at any given time. Shareholders should expect any repurchases to be lumpy in their timing because of the above factors, but also subject to volume and other restrictions on such a program imposed under federal securities laws and our limitations on repurchasing shares during blackout periods.“ - 2024 letter

On the operational side, the broadband segment recently secured approximately $37 million in federal ReConnect and BEAD awards. This non-dilutive capital will significantly accelerate fiber deployment in rural areas. They are also maturing in their asset management arm, showing that the “locomotives” are still gaining steam even if the share price hasn’t followed suit.

What’s dragging the price down?

It is no secret that the market’s relationship with Boston Omaha has soured. If I had to pin down why the stock has struggled to find a floor, I would point to a combination of persistent earnings misses and a sudden lack of operational “cleanliness.” The most recent Q4 2025 results were a punch to the gut for some bulls. While revenue actually beat expectations at $29.71 million, the bottom line was a different story. The company reported a GAAP EPS loss of –$0.22, which was significantly wider than the analyst consensus of –$0.03. This wasn’t a one–off event either; it followed a string of misses throughout 2025, leaving investors wondering when the “locomotives” will actually start contributing to net income instead of just soaking up capital.

Beyond the raw numbers, there are three specific structural pressures weighing on the share price:

• The Surety Slip–up: The General Indemnity Group (GIG) faced unexpected “larger losses” totaling roughly $6.7 million in 2025. For a segment that is supposed to be a steady provider of float and cash, these losses suggest that scaling the business has introduced a level of complexity that management is still learning to navigate.

• The Cost of Growth: While the broadband division is growing, it remains a massive cash sink. The $25.9 million invested into fiber passings last year is a long–term bet, but in a “higher–for–longer” interest rate environment, the market has lost its appetite for businesses that prioritize future infrastructure over immediate free cash flow.

  

• The “Value Trap” Narrative: There is a growing fear that without a clear catalyst or a pivot toward consistent profitability, the stock is becoming a classic value trap. Despite trading at a significant discount to its book value, the lack of near–term guidance or a concrete timeline for GAAP profitability has led many institutional players to move to the sidelines.

The recent sell–off reflects a market that has run out of patience for “potential.” Investors are no longer willing to give management a blank check for capital allocation if it results in widening losses. This skepticism is now baked into the price, creating a scenario where the stock essentially needs to prove its model all over again to regain its former premium.

High-Level BAM-BAM-BAM Hypothesis

Boston Omaha currently sits in that awkward spot the market almost always mishandles. It is a multi–segment holding company with lumpy results and operating businesses that are functionally impossible to value by staring at a single quarterly print. You should care because the market is currently fixated on what it can see today – near–term noise and accounting complexity – while completely underweighting the quietly compounding, asset–heavy platforms maturing in the background. The compelling angle here is the massive gap between the current share price and the embedded, long–duration earning power of its core “locomotives.”

My thesis rests on three specific pillars that I believe the market is missing. First, the business is built on physical infrastructure – billboards and fiber broadband – with unit economics that improve exponentially as utilization rises. Second, there is a massive “complexity discount” at play; the mix of subsidiaries and equity investments makes reported GAAP earnings look far noisier than the actual value being created. Finally, we are witnessing a fundamental segment inflection. The company is shifting from a capital–intensive “build mode” into a “harvest mode,” where incremental revenue carries much higher margins as these platforms reach scale. It is a classic transition from spending money to making it.

The bull case is anchored by Link Media, which has become the sixth–largest owner of billboard faces in the U.S. This is a high–margin, non–consumable business protected by regulatory barriers; once a structure is up, maintenance costs are negligible – roughly $1 million annually for the entire base – letting revenue drop straight to the bottom line. This is mirrored in the broadband segment’s “protected build” model. By focusing on Bulk HOA deals and government–funded projects, they create local utility monopolies with 10–year agreements and 100% take rates. When you add in the niche surety insurance business and management’s aggressive $30 million share repurchase program, you see a team focused on intrinsic value per share rather than cosmetic optics.

Solving for the intrinsic value reveals a potential opportunity that traditional P/E ratios hide. If you subtract the value of the Sky Harbour stake and other minority investments from the total market cap, you are effectively paying roughly $280-300 million for the core operating businesses. Against a normalized steady–state free cash flow of approximately $25 million (my bullish estimate), this implies a forward multiple of just 10-12x, or an 8-10% yield. As the broadband network matures and digital billboard conversions continue through 2026 and 2027, I expect this multiple to compress toward 10x or lower. For a business with utility–like durability and a history of mid–20% revenue–per–share growth, that is a low price to pay.

You can find my detailed analysis of BOC, which I released earlier this year, here:

#2 – Hermès ($RMS)

Hermès is a fortress of artisanal excellence. I view it as the gold standard of vertical integration and scarcity–driven demand. The business model revolves around the uncompromising quality of its leather goods – most notably the legendary Birkin and Kelly bags – which are produced in limited quantities by highly trained craftsmen. The Hermès business model and investment hypothesis does not encompass mass production or trend chasing like some of its fashion “peers”, but instead, Hermès maintains its competitive moat by managing supply so tightly that the waiting list itself becomes a product feature. By controlling almost every step of its production chain and avoiding the trap of discounting, the house has built a level of pricing power that few other companies on Earth can match.

However, it is vital to understand that Hermès does not possess the same type of moat as a traditional industrial giant. While they have intangible assets of an even higher degree–specifically brand power and prestige–they do not rely on massive economies of scale to create cost advantages. They do deliberate scarcity instead. In the luxury goods sector, success operates on this principle of exclusivity.

Beyond just keeping products hard to access, there is a literal scarcity of resources at play. There are simply not that many artisan hands capable of working on these specialized products, and it takes nearly a lifetime to train them to the required standard. A competitor cannot simply scale operations to match this, especially when many of the world’s top–quality leather tanneries are already owned by Hermès, LVMH et. al., creating a physical barrier to entry for any upstart.

In recent years, we have seen a clear divergence among the “Big Four” players: LVMH, Hermès, Richemont, and Chanel. While the sector as a whole is cooling, Hermès has continued to gain market share alongside names like Richemont, Brunello Cucinelli, and Prada. Conversely, Kering has lost significant ground, and Burberry has struggled to maintain its footing. Even LVMH has seen a slight erosion of its dominant share as consumers pivot toward “quiet luxury.”

Despite this relative strength, the stock has not been immune to the broader market malaise. Hermès is currently trading roughly 40% below its recent all-time-high (the biggest drawdown since the GFC), caught in a wave of sector–wide headwinds that as of the recent quarter, even the great Hermès is not immune to.

What’s dragging the price down?

While the brand remains peerless, the stock’s recent performance has hit a significant roadblock, primarily driven by a “optics versus reality” disconnect in the latest financial reports. In the Q1 2026 update, Hermès reported consolidated revenue of €4.1 billion, which represented a 5.6% increase at constant exchange rates. However, the market focused heavily on the published figures, which showed a 1.4% decline in revenue.

This published revenue contraction is a rare sight for a company that usually trades at a significant growth premium, and it suggests that even the most resilient luxury players are not immune to the volatility of global foreign exchange markets.

Beyond the currency pain, a few specific pressure points have emerged that are weighing on investor sentiment and the fundamentals:

• Geopolitical and Tourist Headwinds: Sales in France fell by 3% as slowing tourist flows, particularly in March, were linked to the ongoing tensions in the Middle East. This regional instability also bled directly into the “Other” geographical area, which saw a 13.4% published revenue decline as wholesale activity to concession stores in Middle Eastern airports was significantly affected.

  

• Specific Category Softness: While Leather Goods remained robust with 9.4% constant growth, the Watches métier struggled significantly, posting a 10.3% decline in published revenue and a 3.7% drop at constant exchange rates. This indicates that the “aspirational” or “entry–level” luxury buyer – often the first to pull back in an uncertain economy – is becoming more cautious.

• Market Share and Margin Fears: Although the group maintains a recurring operating margin of 41% , the lack of an EPS beat in the most recent updates and the slight growth deceleration in Asia–Pacific excluding Japan (+2.2% constant) have raised questions. In a market where LVMH and others are also seeing a normalization of growth, investors are penalizing any sign that the post–pandemic luxury “super–cycle” has truly reached its plateau.

I believe the recent sell–off was likely triggered by this cocktail of changing investor sentiment, slowing growth, currency headwinds, and macro-related regional instability. Investors who were used to double–digit top–line growth were clearly rattled by the –1.4% published revenue figure, which likely fell short of consensus expectations for a “stable” published performance.

Furthermore, while management remains confident in its “ambitious goal for revenue growth” (management’s outlook), the formal outlook for 2026 remains couched in language about a “still uncertain economic and geopolitical context.” This lack of specific, upgraded guidance for the back half of the year has allowed the “too richly priced given the slowing growth” narrative to creep in, as the stock’s multiple remains high relative to the broader luxury sector even as growth rates normalize toward mid–single digits

High-Level BAM-BAM-BAM Hypothesis

When I think about how to pitch a stock, I often return to Bill Miller’s philosophy: you need a “Bam–Bam–Bam” thesis – a quick, undeniable sequence of reasons why a business is fundamentally mispriced.

In this spirit, the investment hypothesis goes like this: Hermès is currently the victim of a classic market overreaction to macro noise and short-term challenges (a “problem” that is solvable over the short to medium term). You should care because the market is fixated on a headline –1.4% published revenue decline in Q1 2026 while completely ignoring the long-term pricing power of the brands as well as shorter-term currency headwinds that will eventually lap. The thesis is that the market is missing a “perfect storm” of temporary factors – currency, geopolitical tension, and a specific French tax hike – that are masking the strongest pricing power in the luxury world.

I’ve identified three key pillars that might make this a compelling entry point. First, there is the “Artisan Monopoly” – the physical limit on how many Birkins can exist because it takes a lifetime to train the hands that make them. Second, the resilience of the ultra–high–net–worth client base is being underestimated; while “aspirational” luxury is dying, Hermès’ local client loyalty in places like Japan (+10% growth) and the Americas (+17% growth) remains exceptional. Finally, there is the “Fiscal Normalization” play. LVMH and Hermès might currently be navigating a temporary tax headwind in France, where the corporate rate for giants earning over €1 billion jumped from 28% to 33%. This five–percentage–point drag is a matter of fiscal policy, not brand health, and it might serve as a mechanical catalyst for earnings growth as these measures start diminishing in 2026 and potentially disappear by 2027.

The bull case is further strengthened by a clear path to capacity expansion. The house just inaugurated its twenty–fifth leather goods workshop in Loupes, with three more major facilities planned through 2030. This is a high–margin secondary driver because incremental production of high–demand leather goods (+9% growth) carries significantly higher margins than entry–level métiers like watches.

From a valuation perspective, the stock has historically commanded a P/E multiple near 50x, but the recent sell–off has compressed the Forward P/E toward the mid–30s. When you factor in the €12.2 billion net cash position and a recurring operating margin of 41%, you are paying a “normal” price for an extraordinary business. I see this as a rare opportunity to buy a “scarcity engine” before the tax and currency headwinds shift into tailwinds.

The rationale for Hermès often trading at a 50x earnings multiple – a price I personally would never pay because I’m a “thumb-sucking” value investor – is rooted in the sheer durability of its growth. A standard discounted cash flow model, which typically forces growth down to a 3% terminal rate after ten years, simply cannot capture the weight of a brand with this much heritage. Hermès isn’t just another luxury label – it is a multi-generational compounding machine. When you apply a traditional “fade” to its growth, you are essentially betting against two centuries of evidence that suggests this brand power is anything but temporary, and comes with tremendous pricing power.

If you want to understand the mechanics of this better, I suggest checking out Michael Mauboussin’s recent report on the “Competitive Advantage Period,” or CAP. It is essential reading for anyone serious about quality investing. He makes the case that value creation is a function of how much a company’s return on invested capital exceeds its cost of capital and, crucially, how long it can sustain that positive spread. This “how long” part is what the market consistently misprices. For Hermès, the competitive advantage period isn’t measured in years but in decades, meaning the terminal value assumptions used by most analysts are likely far too conservative.

From a technical analysis perspective, Hermès is interesting as the long-term trend line indicates the stock hasn’t broken its uptrend since the early 1990s, …

… however, if you zoom in a little and consider the last twenty years, the stock of Hermès has already broken through the uptrend, indicating that there may be more downside. As we noted in our perception change framework, “the longer and steeper the uptrend, the more violent the reversion when it finally breaks.”

To follow up on this segment on this luxury powerhouse, I recommend reading this piece I released a few days ago next:

#3 – Hemnet ($HEM)

Over the years, I have spent a significant amount of time studying digital platforms and marketplaces – some of the best business models the world has ever seen –, and Hemnet is structurally just as “elegant.” While global peers like Rightmove or Scout24 often struggle with the inherent price sensitivity of real estate agents, Hemnet has cracked the code by monetizing the home seller directly.

This is a critical distinction because for a homeowner selling an asset worth millions of crowns, a listing fee of a few hundred is practically a rounding error – typically accounting for just 0.1% to 0.2% of the total property value. While Hemnet’s listing fees historically ranged from 1,500 to 10,000 SEK (roughly $150-$1,000), heavily dependent on the chosen package (Basic, Plus, or Premium), the Q4 2025 results show that Average Revenue Per Listing (ARPL) has actually surged to 10,916 SEK more recently.

This roughly 30% year-over-year increase demonstrates that through dynamic pricing and the new high-end Hemnet Max tier, many sellers are now paying well above the traditional 10,000 SEK “ceiling” to secure premium visibility.

This unique position gives the company a level of pricing power that its international counterparts can only envy, underpinned by the fact that nine out of ten homes sold in Sweden are listed on its platform.

Despite this dominant “toll bridge” status, the stock has been caught in a brutal correction, currently sitting roughly 72% below its early 2025 highs as the market has rotated away from high–multiple growth names.

This is where it gets interesting.

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And who would have guessed, it’s a Chinese company!

The stock is down a staggering 70% from its prior high. At first glance, the numbers appear enticing, but the story is admittedly a little more complex.

While earnings are expected to compress in the short term, there’s a compelling argument that if you look beyond the immediate quarterly turbulence (largely driven by macro factors the company cannot control), the long-term potential could offer attractive rewards. This company’s model is undergoing a significant shift: it’s aiming to become more capital-light, targeting higher-quality users, and is about to pursue international expansion ambitions. And while there are challenges, its low valuation, aggressive capital returns, and unique positioning make it a case worth exploring.

In this piece, I’ll dive into why, despite the near-term pressures, this stock could be a hidden gem.

Keep reading to discover if this opportunity warrants your attention.

High-Level Thesis: “Bam Bam Bam Bam Bam”-90 Second-Hypothesis

As always, we kick things off with Bill Miller’s “pitch framework.” Miller famously said that successful portfolio managers have ultra-short attention spans. When pitching a stock, you need to be punchy, data-driven, and get straight to the point. In the spirit of Peter Lynch’s egg timer challenge, where analysts had just 90 seconds to pitch a stock, I’m going to give you the essential pitch for this company in rapid-fire fashion:

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The recent performance of LVMH stock has been a sobering experience for many investors. As you can see from the current price action, the shares have been trending downward for quite some time now and are now hovering near the €480 mark.

Clearly, this is not just a temporary market fluctuation (depending on how you define "temporary,” of course). Arguably, the share price performance is a reflection of a fundamental trend that has been developing for several – and I mean SEVERAL – quarters now. If you look at the company’s recent financial dashboard, the picture is clear. Both the topline, cash flow, and net profits (all represented on a per share basis) have effectively reached a (temporary?) plateau.

Net income and operating profit have, in fact, been declining.

There has been very little meaningful movement in these key metrics for some time. The post-pandemic surge is over. We are now in a period of grinding stagnation.

The Q1 2026 revenue results were another clear disappointment. Revenue came in at €19.1 billion. This represents an organic growth rate of just 1% (-6% reported). For a company that market participants previously valued for its consistent double-digit growth, this is a stark change in reality.

External factors have certainly played a role in this quarter’s underwhelming print. Management noted that the conflict in the Middle East created a headwind that shaved roughly 1% off the organic growth figure in March alone.

However, the problems appear to be more than just geopolitical. The Fashion & Leather Goods segment – the core of the entire group –, for instance, saw an organic decline of 2% (-9% reported). This suggests a softening in demand for the primary brands that drive the company’s valuation.

In my previous piece from July last year, I discussed the long-term moats of the business. I still believe those brands have value. But the current data shows that even the strongest names are not immune to a broader slowdown. The fundamental business performance is simply not moving forward.

In this post, I want to unpack what this means for the future of the stock. I will start by placing these results in context by comparing them to the latest updates from Hermès and Kering. It is important to see if LVMH is an outlier or if the entire luxury sector is facing a structural shift.

I will then dig into the specifics of the Q1 earnings and share my takeaways from the earnings call; what are the executives saying? We will also examine the bull case provided by Francois Rochon of Giverny Capital who purchased the stock last year. I want to weigh his optimism against the growing list of concerns regarding management’s recent creative and strategic decisions. Furthermore, I will address a question that is becoming more common among seasoned investors: Has management forgotten how to run the business? And what could this mean for the future? Finally, I raise the question of what the implications of investors fleeing the US could be on LVMH as currency headwinds prove to be more permanent than many may anticipate.

As you can see, there is a lot to cover. Let’s get into the details.

Disclaimer: I own LVMH shares in the portfolio I run for my partens. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Quick Q1 High-Level Overview

LVMH recorded revenue of €19.1 billion for the first quarter of 2026. On the surface, the headline figure of 1% organic growth might appear resilient in a volatile climate.

I find this narrative a bit too convenient. When you peel back the layers, the core engine of the group – Fashion & Leather Goods – actually saw an organic decline of 2%.

This is a significant yellow flag for a division that has historically been the bedrock of the company’s valuation. It is the first time in recent memory that we are seeing a sustained period where the brand heat of Louis Vuitton and Dior isn’t translating into growth (excluding the 2020 COVID quarters).

Management was quick to point out that the result was heavily weighed down by the conflict in the Middle East. That specific geopolitical drag shaved roughly 1% off the total organic growth in March. Without it, we would be looking at a 2% print.

“LVMH maintained its powerful innovative momentum and showed good resilience in a geopolitical and economic environment that remained disrupted, amplified by the conflict in the Middle East.” – PR

The geographic data tells a story of shifting dependencies. Asia excluding Japan remains a bright spot with 7% organic growth – the best quarterly performance really since the end of 2023 –, while the United States showed a decent start to the year at 3% (both geographies signaling a reacceleration QoQ).

“[…] it’s the best quarter since 2023. And it’s good because it’s broad-based. One thing to -- maybe to notice is that also Sephora is flat this quarter on the Asia cluster and especially China, which was one of the geographical areas that we were fixing for Sephora. So it’s good to see that it’s rebounding.“ - Earnings Call

However, the picture in Europe and Japan is much more somber, with both regions posting a 3% organic decline.

The culprit here is a significant drop in tourist spending. This highlights a structural vulnerability. If the wealthy globetrotter stays home or spends elsewhere, the European flagship stores suffer. While the top line is struggling, the currency situation made the reported numbers look even worse. A strong euro created a massive 7% headwind, dragging the reported revenue down by 6% year–over–year. This is a purely accounting–driven impact, but it adds to the general sense of a company under pressure.

There were some pockets of strength that deserve mention. Watches & Jewelry grew by 7% organically, driven by what I see as a successful transition at Tiffany and continued momentum for Bulgari.

“The Maison [Tiffany] continued to successfully renovate its store network and strengthen its iconic product lines, with HardWear in particular posting very strong growth. Highlights of the quarter for Tiffany included the launch of a marketing campaign featuring its new global brand ambassador, Natalie Portman, and its latest high jewelry collections being showcased in Gstaad and Beijing.

Bvlgari achieved strong growth and unveiled Eclettica, a new artistic vision of high jewelry and prestige watches. The iconic Serpenti and Tubogas lines performed very well. Chaumet was boosted by the expansion of its Bee de Chaumet collection.”

Selective Retailing, which includes Sephora, also managed 4% growth. These “defensive” segments are currently doing the heavy lifting while the main house is undergoing a period of creative and regional transition.

The contrast between these segments and the core fashion business is stark. It suggests that while the brand equity of the jewelry houses remains intact, the “lifestyle” and high–fashion components are facing a much tougher sell. You have to wonder if the aspirational consumer is finally reaching a breaking point. The numbers suggest that for now, the answer is yes.

Insights From the Earnings Call

I spent a significant amount of time parsing the most recent earnings call, but I’ll be honest: there was no single “aha” moment that fundamentally altered the long–term outlook. The discussion largely revolved around the kind of granular, technical questions that analysts love to use for fine–tuning their quarterly models. While understanding the exact timing of inventory shipments or the perception of social media campaigns is useful for a hedge fund trader, it doesn’t move the needle for a structural thesis. Example?

Real investing requires a different kind of lens. You have to ignore the noise of the quarter and look at the horizon.

Generally, the tone of the Q1 2026 earnings call was one of cautious defense. CFO Cecile Cabanis repeatedly leaned on the word “resilience” to describe a set of numbers that, in any other cycle, would be considered anemic.

“On the EU, actually, the Europeans are resisting and quite resilient, because the European clientele is only slightly negative. But you still have the impact on the touristic clientele because of your currencies. And you might have some disruption also, it’s very difficult to address, on some specific tourism because of the conflict. [...]

On the question on tourist and clients, the best performing local clientele have been American and Chinese on Fashion & Leather Goods. The Japanese is still a bit down. And the Europeans are quite resilient, but slightly negative -- flattish, slightly negative.”

One specific exchange worth highlighting, however, was the way management quantified the fallout from the Middle East. We finally got a clear look at the scale of the impact, which doesn’t fully show up in the quarter yet. During the Q&A, an analyst asked for more specifics on the month of March, and the response was illuminating. Management noted:

Question: “So first of all, coming back to the impact of the Middle East, I think you said down double digit, but is it possible to be a bit more specific on the month of March? Was it down 30, 50? And also, are you seeing a bit of an improvement early in the quarter? And also if minus 1% is the impact from 1 month, do you think that minus 3% would be the impact on the full quarter?“

Answer: “Middle East, maybe I’ll put it simple so that you can have an easy idea of the impact. If you take the group, it’s overall 6% of the mix. I’ve said earlier, there are plus and minuses depending on the division. When the conflict started in the month of March, there was a shortfall and a deterioration of demand between 30% and 70%, depending on the malls, depending on the businesses. So overall, if you take a 50% deterioration, then you can have the overall impact, which would be indeed 3 points in March and 1 point on the quarter. I think the outcome, it’s anybody’s -- probably anybody’s guess. What we have not seen yet is repatriation. And what we know is that the wealth has not evaporated. So there will be a time where we’ll see that coming probably elsewhere and mitigate the impact should the conflict continue.“

Moreover, I found the narrative particularly telling when the discussion shifted to the 1% organic growth figure. Management was quick to isolate the geopolitical noise, stating that “the conflict had a negative impact of around 1% on organic growth for the quarter.” By their math, the underlying business is running at a 2% clip. While I understand the need to strip out one–off events, you have to wonder if this is becoming a convenient shield for a broader slowdown. There is a clear divide between what I see as short–term volatility and more structural, long–term challenges. The short–term pain is obvious: a massive 7% currency headwind and the sudden disruption in Middle Eastern tourist flows. However, the commentary on the United States and China suggests something more permanent is shifting. Cabanis admitted that demand for Wines & Spirits, for instance, in the U.S. “is still soft and that we don’t see moving a lot.” What if this isn’t a temporary dip but rather LVMH reaching a saturation point? As we will discuss below, I generally consider the alcoholic beverages segment to be the more permanent “problem child.”

The Q&A segment also revealed an interesting divergence in how the group views its various “engines.” While the Fashion & Leather Goods division – the crown jewel – is currently contracting, management is pivoting the conversation toward “hard luxury” and selective retailing. They noted that for brands like Tiffany and Bulgari, “the overall response to the icon, the craftsmanship, the high jewelry are very strong.” This might suggest that the ultra–high–net–worth individual is still showing up for €50,000 necklaces, even if the “HENRY” (High Earner, Not Rich Yet) consumer has stopped buying €3,000 handbags (this thesis can only partly be confirmed when looking at Hermès’ results further below, though).

The Broader Black Hole of Luxury Consumption? Looking at LVMH’s Peers

LVMH is not an island. To understand the current stagnation, you have to look at the broader wreckage across the sector. I’d argue that for around three years (mainly during the 2021–2023 period), the luxury industry benefited from a massive pull–forward of demand – a pull-forward demand cycle. We are now witnessing the formation of a consumption “black hole.” This is the natural hangover that follows a period where “aspirational” buying became almost a mania – or a way to cope with Covid and its aftermath? Even the most resilient players – yes, I’m looking at you Hermès – are now showing signs of fatigue.

It seems like this is a sector–wide reset. The tide is (temporarily) going out.

Today’s results from Hermès provided the most shocking evidence of this shift. For years, Hermès has been treated as the ultimate safe haven, a stock supposedly immune to the laws of economic gravity. That illusion shattered this morning. The shares are cratering, down 9% in a single session (-13% at one point).

This is a rare, almost unprecedented move for a company that hasn’t seen a one–day drop of this magnitude in two decades, excluding the literal onset of a global pandemic. While organic growth was 6% (yet negative on a reported basis) – a number most peers would envy in the current environment – it wasn’t enough to hide the cracks. France saw a 3% decline, and the Middle East fell by 6%. The myth of “absolute pricing power” regardless of any macro backdrop is finally being tested. When even the UHNWI Birkin bag crowd starts to hesitate, you know the environment has turned challenging.

The disruption in the Middle East and the escalating conflict in Iran have created a double–sided trap. First, there is the direct loss of regional sales. Second, and perhaps more importantly, is the impact on global tourist flows. High–end travel is the lifeblood of luxury. If flights are more expensive or routes are canceled, the “concession” stores and airport boutiques – which represent a massive chunk of high–margin revenue – simply stop breathing. Management confirmed that their owned stores grew at 7%, but their concession sales dropped by an identical 7%. This tells me that the local, loyal client is still there, but the traveling luxury nomad has disappeared.

It is a structural headwind that LVMH, with its massive global footprint, is feeling just as acutely.

Kering, the industry’s perpetual laggard, also reported yesterday. You could describe the quarter as a period of “stabilization.” There is a massive divergence here though. Jewelry grew by 22%, proving that “hard luxury” is still a preferred store of value for the wealthy.

Meanwhile, fashion was down 3%. Gucci, the heart of the Kering investment case, is still stuck in a mid–turnaround purgatory (sales “down 14% on a reported basis and 8% on a comparable basis year on year“). While Balenciaga showed some signs of life, the overall fashion segment outside of Gucci looks remarkably similar to the flat performance we are seeing at LVMH. The “Gucci stabilization” is taking far longer than Kering bulls anticipated. It shows that once a brand loses its heat in this climate, rekindling it is an expensive and slow process.

“Outlook: In a still uncertain geopolitical and macroeconomic environment, the Group places a strong emphasis on agility and flawless execution, equipping each House with sharper, more sustainable brand strategies and the operational support required to accelerate progress. As Kering progresses through 2026, its objective remains to return to growth and improve margins.“

Looking at the results of these two peers, arguably, what we are seeing is a collective “pause” from the global consumer. The luxury powerhouses are paying the price for the excess of the COVID and post-COVID period. The industry pulled so much demand from the future that there is simply nothing left to harvest in the short term.

The question for investors is who can survive this black hole without diluting their brand or destroying their margins? And when can you reasonably expect a recovery and a return to higher growth (if any growth at all).

Right now, none of the big three look particularly comfortable.

Francois Rochon’s Longer-Term & High–Conviction View

I recently spent some time reviewing Francois Rochon’s discussion on “The Investor’s Podcast” with host Clay Finck (linked below). Rochon is a fund manager I’ve long admired for his ability to filter out the cacophony of the daily ticker and focus on the fundamental trajectory of a business. His perspective on LVMH is particularly valuable right now because it stands in such stark contrast to the prevailing gloom in the market.

He was refreshingly honest about his own position, noting that he bought into the company last year and has yet to see a positive return.

“Well, I’m not that good in timing because I bought it last year and so far has not yielded good results“

But for an investor of his caliber, the immediate price action is almost irrelevant. He is focused on the earning power five years from now. His central argument is that the current slowdown is not a sign of structural decay. Instead, just like I do, he views it as a necessary cooling period after the feverish growth of the pandemic era. He sees this as a return to normal rather than a collapse.

“I think probably the years 21, 22, 23 were very very strong but at some point you know consumers needed a little pause in their purchasing and it’s very hard to predict but I think part of the slowdown is just a return to normal so probably the first years 2021 22 was a little too strong relative to let’s say historical norms. So there’s part of that. Also you know inflation makes those products pretty expensive and it’s been a tougher period for consumer in general.”

This normalization thesis is a powerful counter–narrative to the panic selling we’ve seen recently. It suggests that the double–digit growth some investors grew accustomed to was actually the outlier.

Rochon remains unshaken because he believes the brand equity is intact. To him, the only thing that matters is whether the name Louis Vuitton still signifies unparalleled quality to the global elite. He argues that as long as the brand resonance hasn’t faded, the financial results will eventually catch up. It is a long game. The quarterly fluctuations of 2026 are merely footnotes in a much larger story of brand durability.

“I think the key factor is that you want the brand to be as strong as it ever been. That’s what you want. So perhaps people are a little wary of purchasing Louis Vuitton bags, but what you really want is the brand, the name still resonate to clients as quality, something you want to own because it’s of quality and also it’s been there for 150 years and I think that’s the key thing. If the brand is as strong as it was five years ago, eventually the sales will reflect that. […]

But the rest of the business I believe is more cyclical. So I think at some point earnings will rebound and I think probably from here earnings could increase 60 or 70% in the next 5 years. So let’s say a 10-11% growth rate and you’ve got a two percent dividend. So the two together I think … we should be able to attain our objective of finding a 13% grower including the dividend.”

The second pillar of Rochon’s thesis involves China. While many investors are running for the exits due to geopolitical tensions and the “common prosperity” movement, Rochon remains a dedicated optimist. He views China through a lens of decades, not years. His belief is rooted in the simple math of GDP per capita growth. He expects the Chinese middle and upper classes to continue expanding at a rate that will eventually surpass the Western world in terms of luxury consumption. To Rochon, the current political climate and the trend of “luxury shame” is a temporary headwind. He is betting on the triumph of human aspiration and the universal desire for status.

“As they get richer at a faster rate than North American, I think they’ll want to acquire LVMH products, luxury products. Could also be Hermès bags or Prada bags. But in general, I think the demand for luxury goods in China will increase. There will be ups and downs. Perhaps there will be some periods like you described that the government doesn’t really sponsor showing up your wealth but that’s temporary at some point we’ll be back to normal and as the country improves and continues to improve the GDP per capita it’s going to be a stronger economy and they’ll purchase more luxury goods and I think it’s going to be a good market for perhaps not in one year or two years, five year, 10 years, 15 years, and they’re building a business for the next decade.”

I think many investors also overlook the “hidden” engines within LVMH because they are so focused on the headline leather goods numbers. Keep in mind that LVMH is home to 75 distinguished Maisons rooted in six different sectors and hence, is arguably the most resilient of all the luxury stocks you can purchase on public markets (and yes, more resilient than Hermès, one could argue!).

Rochon’s enthusiasm for Sephora is a perfect example of this. He views it as a “fantastic business” and a “very very strong retailer.” While it only represents about 10% of the group’s total revenue, it is growing at a rapid clip. He even noted that Sephora is now a significant competitive threat in the U.S. market, putting visible pressure on the margins of companies like Ulta Beauty.

“Sephora I think is a fantastic business. And I think people when they talk about LVMH, they don’t talk that much about Sephora, but it’s probably just 10% of revenues, but I think it’s growing pretty fast and it’s a very very strong retailer. We’ve been following also Ulta Beauty, which is a very very well-managed company, but you know there there have been some pressure on margins because in the IM they got more competition from Sephora in the United States.”

One of the most intriguing details Rochon highlighted during the interview – and something I haven’t seen discussed much elsewhere – is the specific tax headwind LVMH is facing in France. He noted that a “temporary increase in the tax rate” has been quietly eating into the reported earnings per share. The corporate tax rate for entities earning over €1 billion jumped from 28% to 33%. This is a five–percentage–point drag that has nothing to do with brand heat or consumer demand. It is purely a matter of fiscal policy. Rochon remains hopeful that this is a temporary measure, and if the rate reverts to 28%, it would serve as an immediate and mechanical catalyst for earnings growth.

What I also found compelling about Rochon’s stance is his focus on the Arnault family’s stewardship. While I have my own concerns about the current creative direction and the headwinds facing the aspirational consumer, Rochon’s thesis provides a necessary anchor. It forces you to look past the immediate carnage and ask if the soul of the business is still healthy. For him, the answer is a resounding yes. It’s a bold bet on the persistence of luxury.

Has Arnault Lost the Midas Touch?

I recently encountered a comment in my investor community that stuck with me. A member asked whether the Arnault family might have forgotten how to run their business properly in recent years?

I’ve given this some thought – and while it’s easy to blame the captain when the ship hits choppy waters (remember how many investors called for Google CEO Pichai to step down during the tough quarters?), the reality is usually far more nuanced.

When a stock is underperforming and the chart looks like a mountain range in descent, our brains often default to System 1 thinking. Price starts affecting the narrative surrounding a stock. Humans’ intuitive, impulsive side of their psychology starts taking over; the part that seeks simple narratives. We see a drawdown and assume management has lost its edge. It is far harder to admit that the forces at play might be entirely outside of their control.

But let’s start by considering what the Arnault family could’ve done better in recent years. If we look at the case against the Arnault family, there are certainly some valid criticisms to be made regarding recent creative and strategic choices.

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In this part, we will:

• Explore Grab’s historical growth

• Dissect the trends that will fuel Grab’s future growth, which collectively create a fertile ground for Grab’s sustained success.

• Provide insights into Grab’s market valuation using different approaches, offering a clearer picture of its true attractiveness at the current share price.

What really sets Grab apart is its strategic vision for the future. The company isn’t just looking at incremental growth; it’s investing in next-gen innovations like autonomous vehicles and AI-driven solutions, making bold moves that signal Grab’s ambition to become the backbone of Southeast Asia’s digital economy. As you’ll see, the runway for growth is vast – and Grab is showing signs of a “spawner DNA” – making this valuation assessment not only relevant but a pivotal guide for anyone looking to understand Grab’s position in the evolving tech landscape.

Part 4 – Valuation

4.1. Past Growth

Grab has managed to scale its revenue significantly in recent years. As discussed in the previous parts, from its humble beginnings as a ride-hailing service, the company evolved into a multi-service “Superapp” offering mobility, delivery services, and financial services. The historical data indicates strong revenue growth fueled by increasing demand across these segments.

Looking at the revenue CAGRs, it’s clear that Grab achieved substantial revenue growth in recent years, with a 3.75-year revenue/share CAGR exceeding >50%.

More recently, topline growth rates have naturally slowed – as Grab matures – to more sustainable levels, but if Grab can continue compounding in the mid- to high-teens, investors are looking at an interesting setup at current price levels (to be discussed further below).

As suggested, I don’t think the slowing growth rates should be of concern – especially as Grab’s management team has deliberately moved into a phase more focused on profitability and self-funded growth, where growth is naturally more measured, but as I said, more sustainable, compared to a high-flying growth-at-all-costs model.

When comparing Grab’s performance against the S&P 500 over the past few years, Grab has underperformed significantly. Since its public listing in 2021, the stock has seen a sharp decline, down about 69.55% as of 2026. Over the past 5 years, Grab’s stock performance translates into a CAGR of -19.94%.

This stark contrast to the S&P 500, which has increased by 81.59% over the same period, highlights how poorly Grab’s stock has performed relative to the broader market, which can largely be attributed to the timing of the IPO (during the Covid and SPAC craze) – as a reminder Grab went public on the Nasdaq on December 2, 2021, via a SPAC merger with Altimeter Growth Corp at a valuation of nearly $40 billion… I’d argue Grab’s case study serves as a stark reminder that IPO actually stands for “it’s probably overpriced” – you can’t really blame management for the listing price (quite the opposite as they did a good job timing the IPO as the IPO raised gross proceeds of $4.5 billion in the largest-ever U.S. public market debut by a Southeast Asian company).

Disclaimer:

I own Grab shares. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

4.2. Future Growth

Total Addressable Market Analysis

To understand the future growth potential of Grab, we need to first examine its Total Addressable Market (TAM).

Grab is operating in rapidly expanding sectors, including online food delivery, ride-hailing, and digital banking, which collectively form a massive opportunity. Before its IPO, management estimated in the F1 filing that its core TAM – encompassing these services – will exceed $180 billion by 2025.

“There is a tremendous amount of headroom to grow, and Euromonitor estimates our addressable market to be over $180 billion by 2025, consisting of online food delivery, ride-hailing, and e-wallet markets. We are able to address these different market opportunities through our superapp and our Grab ecosystem.“ - F-1

This already represents a significant market, but if we broaden our scope, the numbers become even more impressive. The overall personal consumption expenditure (GMV) for land mobility back then was projected to reach $231.3 billion by 2025, while expenditure on prepared meals is expected to hit $170.5 billion (again GMV).

“Our Addressable Market and Growth Potential: We started out by providing a platform addressing the mobility opportunity in Southeast Asia, with the ride-hailing market estimated to be at $4.5 billion in 2020 according to Euromonitor. We have since expanded our platform to address food and other deliveries and e-wallet opportunities, estimated at $9.4 billion and $38.9 billion in 2020, for the online food delivery and e-wallet markets respectively.

According to Euromonitor, total personal consumption expenditure for prepared meals and land mobility, which includes operation of personal transport equipment, personal consumption expenditure on buses, coaches and taxis, are expected to reach $170.5 billion and $231.3 billion, respectively, by 2025. Cash payments transaction values are expected by Euromonitor to reach $1,356.1 billion by 2025. We expect that digital penetration rates will increase over time as digital alternatives become more popular.“ - F-1

Let me stress that those were the historical, pre-IPO projections. According to the e-Conomy SEA 2025 report by Google, Temasek, and Bain & Company, the region’s total digital economy Gross Merchandise Value (GMV) surpassed $300 billion in 2025.

This expansion was driven by a decisive shift toward deep digital participation, with over 60% of all transactions in the region now occurring digitally.

Here is a breakdown of what drove that expansion and the characteristics of it:

• Video Commerce: One of the biggest drivers has been the rise of “shoppertainment.” Video commerce (buying through live streams and social video apps) now accounts for roughly 25% of the region’s total e-commerce Gross Merchandise Value (GMV).

• Infrastructure & QR Codes: The expansion was largely fueled by national unified QR systems (like QRIS in Indonesia or PromptPay in Thailand) and cross-border QR interoperability between ASEAN nations.

• Depth of Adoption: It’s not just about more users; it’s about deeper usage. Roughly three out of five Southeast Asians now shop online, and the focus has shifted from acquiring new users to increasing the frequency and value of transactions from existing ones.

Similarly, within Grab’s core segments, the 2026 Mordor Intelligence Foodservice Market Analysis estimated the total Southeast Asian foodservice market reached $223.8 billion in 2025, well ahead of the $170.5 billion initially expected. The Analysis is projecting a market growth CAGR of 13% throughout 2031.

In the slide deck below, which Grab shared recently after the foodpanda acquisition, Grab itself estimates the current size of the foodservice serviceable market in SEA to be $200 billion+.

Looking ahead, the addressable opportunity is shifting from a “digital decade” of user acquisition to a $1 trillion “intelligent economy.” Analysts from HSBC’s Digital Frontiers 2030 and the e-Conomy SEA 2025 report now project the ASEAN digital economy GMV could reach $1 trillion by 2030, fueled by the integration of AI-driven logistics and the maturation of digital financial services.

“By 2030, Southeast Asia’s digital economy will reach $1 trillion, with the potential to hit $2 trillion as ASEAN implements its Digital Economy Framework Agreement. Growing at double the global rate, GDP in Southeast Asia hit $4.25 trillion in 2025, making it the world’s fourth-largest economy after the US, China, and Germany. With a young, digitally engaged population and pro-innovation policies, Southeast Asia is quickly becoming a global economic powerhouse, leaving its former identity as a modest, developing region decidedly in the past.“ - HSBC

Grab is well-positioned for this next phase. As you should know by now, the company announced its first full year of net profit recently and record Monthly Transacting Users (MTUs) today exceed 50 million.

Moving into 2026, S&P Global Ratings and internal guidance forecast continued momentum, with Grab’s total revenue expected to grow by approximately 20% to $4.1 billion in 2026, supported by a projected 15.8% CAGR in the broader Asia-Pacific fintech market through 2031.

Koyfin’s consensus estimates (consensus earnings estimates compile individual projections from various analysts into an averaged figure) project similar topline growth rates for the next three years.

Looking Ahead!

Over the years, Grab has consistently expanded its TAM, demonstrating its ability to adapt and evolve. What started as a taxi-booking app in 2012 has transformed into a multi-modal platform, adding food delivery and, more recently, digital banking. The company has expanded geographically, with the acquisition of Foodpanda Taiwan marking its first major step out of Southeast Asia. Similarly, its acquisition of Stash signals Grab’s entry into the digital investing space, which could tap into the $5 billion+ AUM market.

The key takeaway here so far shouldn’t really be an exact number of the TAM’s size – most TAM estimates turn out to be wildly off and while I’m referencing some numbers to provide context, there’s really no way to have an informed opinion on the accuracy of any of them – but rather that the runway is significant. But just using common sense suggests that Grab, and the entire SEA region, are early in their respective growth stories.

Grab, for instance, stands to benefit from several secular tailwinds in Southeast Asia that will continue to fuel the expansion of its TAM. These trends include:

1. Accelerated Urbanization: According to the United Nations’ World Urbanization Prospects 2025, the majority of the world’s population now resides in urban areas, with Southeast Asia remaining a primary engine of this growth. Jakarta has emerged as the world’s most populous city-region with nearly 42 million inhabitants, and the broader Asian urban population is projected to exceed 55% by 2030. This densification directly scales the demand for Grab’s localized mobility and delivery infrastructure.

   

2. Near-Universal Mobile Connectivity: The GSMA Intelligence Mobile Economy 2026 report indicates that smartphone penetration in the region has successfully reached the previously forecast 84% benchmark. With a growing number of connections operating on high-speed 3G/4G/5G broadband, the “mobile-first” population has matured into a “mobile-only” consumer base that relies on superapps for daily survival.

   

3. The Persistent “Underbanked” Gap: While the 2024/2025 ASEAN Monitoring Progress Report by the UNCDF highlights that pure financial exclusion (unbanked) has dropped significantly to approximately 20.8%, a massive opportunity remains in the “underbanked” segment. The World Bank’s Global Findex 2025 and the e-Conomy SEA 2025 report note that nearly 70% of adults in Southeast Asia still lack access to credit, insurance, or wealth management tools. This provides Grab’s digital banking and lending arms with a vast, underserved market as the region transitions toward a $1 trillion digital economy.

These trends will provide long-term secular support for Grab’s services, ensuring that the market it operates in continues to expand rapidly.

Historical TAM Expansion

Also, the ability of management to “manufacture” new TAM is often a more reliable predictor of long-term value than the initial size of the market they enter.

Over the years, Grab has consistently expanded its TAM, demonstrating its ability to adapt and evolve. What started as a taxi-booking app in 2012 has transformed into a multi-modal platform, adding food delivery and, more recently, digital banking. The company has expanded geographically, with the acquisition of Foodpanda Taiwan marking its first major step out of Southeast Asia. Similarly, its acquisition of Stash signals Grab’s entry into the digital investing space, which could tap into the $5 billion+ AUM market.

(Almost) Just as Steve Jobs transformed the $91 billion cell phone industry into a multitrillion-dollar mobile economy by redefining the device as a software platform, Grab’s leadership has consistently demonstrated an operational reflex for market creation rather than just market capture.

This “optionality” was embedded in their DNA as far back as the F-1 filing, where they identified the “informal economy” not as a static segment, but as a massive, underserved opportunity for digital infrastructure.

“As we continue to expand our platform and increase the breadth of our offerings over time, our platform is able to address additional consumer and business needs, and grow our addressable market. For example, given the importance of small businesses and the informal economy, we believe there is a large and important opportunity to help such businesses and participants in the informal economy to navigate an increasingly digital world. We leverage our existing reach with our driver- and merchant-partners to provide digital tools and training that are critical to thriving in the increasingly digital economy, helping to lay the foundations for more inclusive growth across the region. With our scale, ecosystem and platform advantages, we believe that we are well-positioned to navigate the complexity of Southeast Asia and address certain key challenges in the region.“ – F-1

The full story starts here:

The rest of this post covers TAM penetration and market share dynamics, the identification of seven key growth drivers going forward, and two valuation approaches. If you’re serious about sharpening your investing edge, the full post (and all my previous premium content, including valuation spreadsheets, deep dives (e.g. well-known mid- and large caps such as LVMH, Duolingo, Meta, Edenred as well as more hidden gems such as Tiger Brokers, Digital Ocean, Ashtead Technologies, InPost, Timee, and MANY more) and powerful investing frameworks are just a click away. Upgrade your subscription, support my work, and keep learning.

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Annual members also get access to my private WhatsApp groups – daily discussions with like-minded investors, analysis feedback, and direct access to me.

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But who are the individuals actually sitting in the cockpit, and can they be trusted with your capital? In this section, we pull back the curtain on the leaders behind the “Superapp” to explore the stories and strategies that most analysts miss:

• The Inheritance Gamble: Why the CEO walked away from a multi-billion dollar family empire – and the personal rift that forced him to build Grab with everything on the line.

• The “Street Fighter” vs. The Giant: The inside story of how local grit outmaneuvered Silicon Valley’s deepest pockets, and why that same mentality is being tested again today.

• The Secret Cultural Code: We look at “The Grab Way” – a rigorous internal framework that dictates who stays and who goes. Is it a visionary philosophy or a high-pressure trap?

• The $1.2 Billion FCF Roadmap: Management has set a massive target for 2028. We break down whether this is a realistic promise to shareholders or a calculated projection to keep the stock afloat.

• The Watcher on the Board: Why the CEO of their biggest former rival is now sitting in their boardroom, and what that means for Grab’s ultimate endgame.

• Founder vs. Professional: We examine the tension between a founder’s vision and the need for corporate discipline. Is the current leadership team a well-oiled machine or a one-man show?

• … and more!

Is the “Street Fighter” at the top still hungry, or has he finally become part of the establishment he once disrupted?

Part 3 – Management

3.1. Management Background

When evaluating a company’s management, understanding the background and operational track record of the leadership team is critical.

For Grab, the company is led by its co-founder, Anthony Tan, who has served as the Group CEO since its inception in 2012. His 14-year tenure provides significant institutional memory and ensures a long-term vision for the company. His journey from Harvard Business School to building Grab from the ground up offers insights into his leadership style and capital allocation approach.

CEO Tenure and Path to Leadership: The Billionaire Heir Who Chose the Trenches

Anthony Tan’s path to leadership is both foundational and experience–driven. He did not rise through the ranks of an unrelated corporation. Instead, he built Grab from scratch to address local challenges – most notably, the safety and reliability issues in Malaysia’s taxi industry.

Tan’s prior experience in his family’s business, Tan Chong Motor, where he worked in supply chain and marketing, gave him a strong operational foundation. He served as the Head of Supply Chain and Marketing, which meant he was responsible for the logistical moving parts and brand positioning of Nissan across Malaysia. This was no vanity role. It gave him a front–row seat to the inefficiencies of regional logistics. However, the move from the family empire to the startup world was far more contentious than a simple career change.

The Patriarch’s Shadow and a Mother’s Silent Rebellion

When you look closer at the early days of MyTeksi, the funding story serves as a window into a massive family rift. You might assume the Tan family wealth simply flowed into the new venture. The opposite is true. Anthony’s father, Tan Heng Chew, was a staunch opponent of the idea. He viewed the taxi booking concept as a distraction. He essentially told Anthony that if he left the family business for this “hobby,” he would be on his own financially. It was a “stay in line or lose the legacy” ultimatum.

The tension was palpable. Anthony chose the exit. The funding did not come from the patriarch. It came from his mother, Rosie Tan. She provided the initial angel investment that allowed him to ignore his father’s warnings.

This internal power struggle is key to understanding his drive. He wasn’t just building an app. He was proving a point to the head of the family.

To really understand the man, you have to look past the wealth and toward the “street fighter” persona he frequently references. Because he was essentially cut off by his father, the safety net was gone. He had to win. I find it fascinating that he often points to his great–grandfather, who started as a humble taxi driver. By launching Grab, Anthony was effectively bypassing his father’s corporate structure to reconnect with those working–class roots. I’m exaggerating a little, but you get the point.

This psychological break created a founder who was willing to spend his nights at taxi stands pitching to drivers in the rain. He had to shed the “silver spoon” stigma. He did it by outworking everyone in the trenches. It worked. The result is a leader who combines high–level supply chain expertise with the desperate urgency of someone who has everything to lose.

Does an Emotional Stake Outperform Financial Skin?

This leads me to a question I asked myself when studying Grab. What is the more powerful force for a CEO: financial skin in the game or an emotional stake in the business?

Often, they overlap. As a founder, your net worth is tied to the stock. Your heart is tied to the mission. But if you have to choose which one keeps you awake at 3 a.m., I’d argue the emotional component wins every time.

What struck me while watching a recent interview (see below; starts at 11:55) was a moment of unexpected vulnerability. Anthony shared that his father still does not speak to him after his decision to leave the family business. It is a remarkable admission. This is especially true in a culture where family harmony and filial piety are often paramount. This is more than a career disagreement. It represents a fundamental break from a legacy that expected him to follow a pre–written script. To me, this openness says a lot about his character. He avoids the trap of projecting a perfect image, choosing instead to acknowledge the scars that came with his independence.

I suspect that proving his father wrong is a significantly more potent motivator than any monetary incentive coming from his compensation packages or his ownership stake in Grab. When you are essentially disowned for your ambitions, the business becomes more than a company. It becomes your identity and your vindication. Subconsciously, every new market Grab enters or every milestone reached, serves as a message sent back to that dinner table in Malaysia. Money is a scoreboard. However, the desire to be seen and validated by a parent is a primal engine. It drives a level of intensity that simple financial gain cannot touch.

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Before we dive in, let me share the 2026 product day, Grab X, below, which introduced a couple of very fascinating products and features, including …

• GrabMaps for Consumers: Enhanced maps featuring indoor mall navigation, real-time parking, EV charger locations, and AI voice cloning for navigation.

• Grab More: Enables users to order from two different nearby merchants in a single delivery order without extra fees.

• Grab Shopping Agent: Allows users to build checkout carts across multiple merchants using photos, voice notes, or text.

• Cash Loan: In-app AI-powered lending for all Grab users with instant approval and customized repayment for users with limited credit history.

• Discover by Grab: An AI-curated feed for local dining recommendations and community-driven content.

• Group Ride: Allows up to four passengers to share a single vehicle with multiple pickups/drop-offs and split fares (up to 40% cheaper).

• Personalised Travel Experience: A centralized travel portal with airport guides, check-in reminders, and baggage belt navigation.

• GrabStays: An in-app hotel booking service offering same-day rates and GrabCoin rewards.

• GrabPay for Travel: Seamless cross-border QR payments using existing saved cards without needing local wallet top-ups.

• Driver AI Assistant: A hands-free voice chatbot to assist drivers with navigation, messaging, and policy queries.

• Tap to Pay: Converts any smartphone into a contactless payment terminal via the GrabMerchant app.

• Carri: A prototype AI robot designed to assist delivery partners by navigating “the last mile” inside malls and office towers.

And this is just my personal selection of highlights. There’s more.

Disclaimer: I own Grab shares. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Part 2 – Business Quality

Competitive Advantages Analysis

Grab’s competitive advantages are built on a multi-layered moat that combines digital network effects, physical infrastructure, and regulatory barriers. These advantages make it difficult for competitors to replicate Grab’s success in Southeast Asia.

Brand Moat: Trusted and Embedded in Daily Life

Grab’s brand is one of its most powerful advantages. It has become a household name and trusted brand in Southeast Asia, so much so that in some countries, “Grab” is used as a verb for hailing rides or ordering food. Its strength lies in being the category leader across multiple sectors, from mobility to deliveries to e-wallets. This brand dominance is not about prestige (the type of brand moat companies like Hermés, Ferari, or LVMH lean into) – it’s about trust and reducing search costs.

Grab has positioned itself as a utility-based brand, essential for everyday tasks like commuting and eating.

The company’s brand is also highly habit-driven. For millions, Grab is deeply integrated into the daily rhythm of middle-class life, making it a go-to solution for transportation and food delivery. Customers associate Grab with quality, reliability, safety, and convenience, which, as mentioned, reduces search costs – customers don’t need to look elsewhere for alternative services; it becomes habitual.

Over time, this deep brand loyalty is expected to endure for decades as Grab continues to evolve from a startup into a key part of regional digital infrastructure.

Network Effects: The Grab Ecosystem Flywheel

Arguably, the most powerful competitive advantage Grab possesses is its network effects. As the company expands, its platform becomes increasingly valuable. This is known as the “Grab ecosystem flywheel”.

Here’s how it works: as more drivers join, wait times drop, attracting more consumers. As more merchants join, a wider selection of products and services becomes available. And the more consumers there are, the more orders are placed, which attracts even more drivers and merchants. This virtuous cycle makes the platform increasingly difficult for competitors to disrupt.

The power of Grab’s network is also fueled by data loops. With billions of transactions occurring on the platform, Grab is able to continuously improve its services through AI, driving better routing for drivers and more efficient credit scoring for financial services.

What’s more, because Grab serves daily needs – transportation, food delivery, payments – the frequency of interaction strengthens the network far more than platforms offering less frequent services. There are 50 million MTUs. As of early 2025, Grab recorded 7.8 million DTUs. These daily users represented approximately 16% to 17% of the total Monthly Transacting User (MTU) base at that time. Customers who utilize both GrabFood and GrabMart (groceries) have order frequencies 1.8x higher than those who only use food delivery. And members of the GrabUnlimited paid loyalty program interact far more often, showing 3x to 4x higher order frequency in the food segment compared to non-subscribers

So it seems like once onboarded, users remain on the platform, and over time, increase their purchase frequency and spend more, continuing to contribute to the growth of the flywheel.

The Hyperlocal Nature of the Network

When studying Grab, most investors probably see a regional giant spanning eight (soon nine) countries, but the reality is much more granular. A driver in Bangkok provides zero utility to a commuter in Ho Chi Minh City. This places Grab firmly in the hyperlocal quadrant of the marketplace matrix I always come back to when studying network effect marketplaces and platforms.

Every time Grab enters a new city or even a new neighborhood, they essentially have to restart the flywheel from scratch. They must spend heavily on driver incentives and passenger promos just to reach that critical mass where the wait time drops enough to make the service viable. It can be a grueling, capital–intensive process – especially early on – and it was for Grab, battling for market share with behemoth Uber and local peers. You can see this reflected in their historical burn rates.

Unlike a global network like Airbnb where one listing can attract a traveler from anywhere on Earth, Grab is forced to win thousands of tiny, isolated battles against regional competitors. The network effects don’t cross borders easily. Success in Singapore does not guarantee a win in Jakarta. It never has.

If the geographic limitations weren’t enough of a hurdle, we have to talk about the supply side of the equation. In the ride–hailing and food delivery segments, Grab deals almost exclusively in commoditized supply. A car is a car. A delivery rider is a delivery rider. From your perspective as a user, you likely don’t care who is behind the wheel as long as they arrive in five minutes and don’t overcharge you. This lack of differentiation is a nightmare for defensibility. It leads to the “multi–tenanting” problem where consumers may use multiple apps, opting for the best offer available at any given point in time – price comparison. This may create a permanent ceiling on margins.

The real question for any Grab shareholder is whether the “super–app” strategy can actually move the company up the matrix into a more defensible tier. Grab isn’t just trying to be a taxi service. They want to be your digital wallet, your insurer, and your bank. Your everything app. This is an attempt to create a differentiated supply combined with a strong lock-in effect (as to be discussed below). Financial services and loyalty programs like GrabRewards are designed to create this exact “lock–in” that transcends the commoditized nature of a car ride. If you have all your wealth and points stored in one ecosystem, you are far less likely to switch to a competitor for a fifty–cent discount on a laksa delivery. It’s similar to ordering on Amazon: you may know that there may be a cheaper offer available on another ecommerce website, bit Amazon just works, you know the return policy is incredibly consumer oriented, and that the parcel may be at your doorstep in 24 hours.

By layering multiple services, Grab is attempting to build a “horizontal” network effect where the frequency of ride–hailing feeds the data for credit scoring, which in turn fuels the fintech arm. It is an ambitious goals. I believe the success of this determines whether Grab remains a lower-tier utility or becomes a tier–1 powerhouse. They are trying to build a moat where none naturally exists. It’s a bold bet. The jury is still out.

The full story starts here:

The rest of this post covers the remaining pillars of Grab’s moat stack and the trajectory the business is on. If you’re serious about sharpening your investing edge, the full post (and all my previous premium content, including valuation spreadsheets, deep dives (e.g. well-known mid- and large caps such as LVMH, Duolingo, Meta, Edenred as well as more hidden gems such as Tiger Brokers, Digital Ocean, Ashtead Technologies, InPost, Timee, and MANY more) and powerful investing frameworks. is just a click away. Upgrade your subscription, support my work, and keep learning.

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Annual members also get access to my private WhatsApp groups – daily discussions with like-minded investors, analysis feedback, and direct access to me.

PS: Using the app on iOS? Apple doesn’t allow in-app subscriptions without a big fee. To keep things fair and pay a lower subscription price, I recommend just heading to the site in your browser (desktop or mobile) to subscribe.

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In 2012, Grab was born from a simple, but ambitious business plan aimed at tackling one of the most unreliable and unsafe taxi systems in the world – Malaysia’s. Fast forward to today, and Grab has evolved from that small idea into effectively the “operating system” for daily life in (most of) Southeast Asia.

And Grab is not just another app. In Southeast Asia, Grab is more than a name – it’s become a verb for many. People say, “It’s raining; let’s just Grab to the mall instead of walking” or “I’m too tired to cook, should we Grab some Thai food?” without thinking twice. And it doesn’t stop there – Grab has mastered the art of creating habits, seamlessly integrating itself into the daily lives of millions of people who now rely on it for everything from getting from point A to point B to paying bills to online shopping.

Grab’s story is also a survival narrative that most tech companies would envy. In 2018, Grab managed to outmaneuver the global giant Uber in its home region and, eventually, when Uber basically gave up, acquired Uber’s Southeast Asian operations in a unique deal. That was a pivotal moment in Grab’s history, solidifying Grab’s dominance and ensuring that Uber’s exit from Southeast Asia would make Grab the undisputed leader in ride-hailing and delivery services.

Fast forward to 2025, and Grab hit a major milestone: profitability. After years of burning through capital in pursuit of growth, Grab reached its first full year of net profit in 2025 – $200 million in the black. This marks a significant inflection point, where the company is transforming from a “growth-at-all-costs” startup-like-business into a more disciplined, profitable growth powerhouse with a clear path to long-term value creation.

But here’s the thing: Grab’s story is far from over. In fact, despite its massive scale already – Grab is a multi-billion-dollar company today –, the company is still just scratching the surface. Grab’s Monthly Transacting Users (MTUs) currently represent just 6% to 7% of the Southeast Asian population. That means there’s a huge growth runway ahead – roughly 94% of the market is still untapped.

What’s even more exciting is Grab’s ecosystem flywheel. About two-thirds of Grab’s users engage with two or more services, and for those using three or more services, the one-year retention rate is an impressive 88%. When customers stay, they not only use more services, but they spend more, too. This is a growth driver that keeps feeding itself.

And then there’s Grab’s cutting-edge use of AI-driven efficiency. By utilizing proprietary AI models, Grab has been able to double its revenue from 2022 to 2024, all while keeping headcount flat. Over 90% of mobility rides are now dispatched using AI, showcasing just how much the company has automated its operations.

On the financial side, Grab has successfully expanded into digital banking. In just three years, Grab amassed 7.4 million deposit customers across its three digital banks, and its loan portfolio crossed the $1 billion mark in 2025 and is expected to exceed $2 billion by 2026 year-end.

And as if all of this wasn’t enough, Grab is setting its sights on global expansion. In early 2026, it completed the $600 million acquisition of foodpanda Taiwan, signaling the company’s intention to push beyond Southeast Asia and tap into new, high-value markets. This marks the first major step in Grab’s journey toward becoming a truly global player.

Of course, this is just the tip of the iceberg. Grab is positioning itself for the future with ambitious plans around autonomous vehicles (AVs) and scaling its financial services. The company is constantly innovating, finding new ways to integrate its services and make the lives of its users easier and more connected.

But what does this mean for investors? Can Grab sustain its growth? What challenges lie ahead? And most importantly, what kind of valuation can you expect as this story unfolds?

As you can tell, Grab is a fascinating business to dive into. So let’s do exactly that and dive deeper into Grab’s history, business model, management team, moat stack, its future, and the growth drivers that will continue to propel this Southeast Asian juggernaut forward.

Are you excited yet? Let’s dive into the first part (11,500 words) of this deep dive.

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Disclaimer: I own Grab shares. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

High-Level Thesis: “Bam Bam Bam Bam Bam”-90 Second-Hypothesis

As always, in the style of legendary investors like Bill Miller and Peter Lynch, I’m attempting to give you the quick 90-second rundown on Grab Holdings (GRAB) – what’s the investment hypothesis (which we are then going to test throughout this deep dive?

Right now, the stock trades around $3.6, a significant pullback from its 2021 debut. While that might sound concerning, the real story lies in the business transformation that’s been happening under the hood (i.e. not reflected in the share price).

Here are the five reasons why I think Grab is an interesting opportunity:

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You likely think of global ubiquity in terms of the technology in your pocket or the way we travel across borders. But there is a silent sovereign in the American economy that moves more volume than the tech icons we obsess over, and it does so without a single retail storefront.

Every year, Fair Isaac Corporation – better known as FICO – sells over 10 billion scores (which translates to approximately 27 million scores purchased daily).. To put that in perspective, that is roughly 40 times the number of iPhones Apple ships to the entire world in a year and nearly double the total number of passengers who board a commercial flight globally.

It is the de facto passport for financial mobility, used in 90% of all top U.S. lending decisions and serving as the primary measure of risk for over 12 trillion dollars in U.S. mortgage debt.

If you want a mortgage, an auto loan, or even to rent an apartment, you aren’t just a person – you are a three-digit number owned by a company that started in a studio apartment in 1956 with 400 dollars and a radical dream of replacing “handshake-and-vibes” lending with objective algorithms.

In this multi-part deep dive, I want to pull back the curtain on the most efficient toll-bridge in global finance (88% EBIT margins in the Scores segment), and why its supposedly certain downfall was just derailed by a massive regulatory reversal.

I find it fascinating how few people realize the sheer, unchecked pricing power FICO wields. Between 2022 and 2025, the company did something that would be a death sentence for almost any other business – and it brought its fair set of challenges to FICO too, to be fair. It raised the price of its mortgage scores from roughly 0.60 to 4.95 dollars by 2025. That is an 800% increase in just three years. And then again to $10.00 (or $4.95 + $33 Success Fee) for 2026 – another 2x increase.

Imagine your internet provider or utility company jacking up rates by eight times; there would be a congressional inquiry by sunset.

Yet, because FICO is the “universal language” of the mortgage market – cited in 98.8% of all securitizations – lenders simply paid the toll. The financials are the stuff of legend. The company’s core Scores segment operates with 88% operating margins. Even more staggering is the “95% Rule” – for every new dollar of revenue FICO generates through these price hikes, nearly 95 cents drop straight to the bottom line.

As of FY2024, the company turned 1.72 billion dollars in revenue into more 600 million dollars of free cash flow. It is a capital-light compounding machine that requires no factories. It is pure risk math.

For the last 1-2 years, the primary “bear case” for FICO was built on the threat of “Lender Choice” – a regulatory push to break the monopoly by allowing competitors like VantageScore into the ecosystem. The plan was to move from a “tri-merge” (where lenders pull scores from all three bureaus) to a “bi-merge” (where they only pull two). This would have effectively stripped FICO of its guaranteed seat at the table. But everything changed in July 2025. In what some have dubbed the “Pulte Pivot,” FHFA Director Bill Pulte unexpectedly maintained the tri-merge requirement, effectively pulling all three bureaus and slamming the door on the bi-merge transition. This move preserved the existing plumbing of the mortgage market and cemented FICO’s dominance just as the market thought the “invisible engine” was about to be dismantled.

Given the excessive price hikes, this doesn’t mean the regulatory risk is “done” though.

Is the Largest Drawdown Since 2008 an Opportunity?

The world looks significantly more volatile than it did even a few months ago. The ongoing war with Iran has sent geopolitical shockwaves through every asset class, and we are now staring down a macro environment where inflation is expected to skyrocket.

Market sentiment has turned decidedly cold. FICO is currently experiencing its largest drawdown since the Great Financial Crisis, with the stock falling 52.67% from its peak.

I see a market growing increasingly cautious around credit risk, fueled by concerns over debt exposure at firms like Blue Owl ($OWL) and Oracle ($ORCL). This anxiety may have contributed to the drag on FICO’s valuation, down to 25.1x NTM P/E and 18.8x EV/EBIT – well below its five-year mean of 31.5x.

You have to ask yourself: is this a warning of a broader credit event, or a generational buying opportunity for a monopoly?

So in this deep dive series, I’ll explore how FICO is positioned to navigate this era of stagflation and war, and whether the “high beams” of federal regulators are still a threat after the Pulte Pivot.

In this first part, we cover the business’s history, the business model, its products, and competitive environment (11,000 words in total).

Here’s what I will cover in this deep dive series:

• “BAM BAM BAM BAM BAM” 90-Second Pitch – Why Fair Isaac and Why Now?

• 1) Understanding the Business

  • 1.1. Business History

  • 1.2. Product

  • 1.3. Business Operations

  • 1.4. Customers

  • 1.5. Industry & Competitive Landscape

• 2) Business Quality

  • 2.1. Competitive Advantages Analysis

  • 2.2. Other Thoughts on Business Quality

• 3) Management and Governance

  • 3.1. Management Background

  • 3.2. Integrity, Incentives, and Compensation

  • 3.3. Capital Allocation

  • 3.4. Management Roasting

• 4) Financial Health

  • 4.1. Balance Sheet Health

  • 4.2. Operating Perspective

  • 4.3. Off-Balance Sheet Items & Hidden Risks

• 5) Risks

  • 5.1. Inversion

  • 5.2. VantageScore vs. FICO: Is the Credit Scoring Giant Losing Its Grip?

• 6) Other Items

• 7) Valuation

  • 7.1. Past Growth

  • 7.2. Future Growth (including a TAM analysis and identifying key growth drivers)

  • 7.3. Valuation Work

• Fun Fact

• Appendix

Disclaimer: The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

High-Level Thesis: “Bam Bam Bam Bam Bam”-90 Second-Hypothesis

When you think of the stock market, one of the biggest challenges is quickly determining whether a business truly has potential. As my regular readers know, Bill Miller, legendary investor, is known for his “Bam Bam Bam Bam Bam” approach to pitching stocks – which I’ve shamelessly copied.

In essence, it’s a quick pitch that gets straight to the point: Why is this a great business? Miller’s style demands clarity and precision, with just five reasons why an investment could make sense. So, let’s apply this framework to Fair Isaac Corporation (FICO), a company that may not be on everyone’s radar, but absolutely should be.

Here we go …

• BAM #1 – Indispensable Industry Standard: FICO’s scores are the industry standard. In fact, 90% of top U.S. lending decisions use FICO scores. Beyond that, FICO scores dominate the secondary market for securitizations, with 98.8% of U.S. securitizations – a financial process that pools income-generating assets (such as mortgages, auto loans, or credit card debt) and converts them into marketable securities – using FICO to communicate credit risk to investors. This is a business that has become synonymous with credit risk, and replacing FICO would be like changing the engine of a plane mid-flight – a daunting task.

• BAM #2 – Unmatched Pricing Power & Value Gap: FICO is in the midst of a remarkable pricing transformation. After decades of keeping prices flat, FICO raised its wholesale mortgage score price from about $0.60 to $4.95 by 2025 – an eye-popping 800% increase –, and $10 by 2026. Despite this hike, FICO’s fee still represents a negligible 0.2% of average mortgage closing costs. This leaves ample room for further price hikes – at least if you have a long-term view (less so in the near term) – without significantly impacting volume.

• BAM #3 – Elite Margin Profile: FICO’s Scores segment boasts near-monopoly margins, with 88% – yes, you read that right! – operating margins in Q1 2026. The key here is the low incremental cost structure: the core algorithms, developed decades ago (but frequently updated), require minimal investment to scale. That means when FICO raises prices or increases volume, almost every new dollar drops straight to the bottom line.

• BAM #4 – Strategic SaaS Transformation: FICO is transitioning its Software business from legacy on-premises applications to a cloud-native platform. This transformation is paying off, with platform-specific Annual Recurring Revenue (ARR) growing at over 30% in Q1. The company’s “land and expand” strategy is also working well, with existing customers spending significantly more as they adopt new decision-making use cases. This positions FICO for long-term growth in the SaaS space.

• BAM #5 – Aggressive, Shareholder-Aligned Capital Return: FICO has used its cash flows to buy back stock aggressively, reducing its share count by 30% over the past decade, leading to incredibly fast profit per share growth. In fiscal 2025 alone, the company returned $1.4 billion to shareholders via buybacks.

This strategy has led to a stellar 18% EPS CAGR over the last 13 years, far outpacing its 8-9% revenue growth (not per share revenue growth as displayed in the chart below). Simply put, FICO is showing its commitment to delivering value to shareholders.

As we enter 2026, FICO finds itself at a rare entry point. The stock has experienced a 52% price drop from its highs, making it a possibly attractive buy for long-term investors.

So why the drop?

What Went Wrong?

Despite FICO’s strong business fundamentals, the company hasn’t been immune to challenges. The key issues that have weighed on the stock recently are:

• Regulatory Breach of the Monopoly: The FHFA’s formal transition to a “Lender Choice” model has opened the door for VantageScore 4.0 to compete directly with FICO in the market for Fannie Mae and Freddie Mac loans. While this introduces competition and substitution risk, it’s not an existential threat to FICO’s dominance – yet.

• Volume and Revenue Contraction Risks: The potential shift from a “tri-merge” model, requiring three credit scores, to a “bi-merge” model, requiring only two, has the potential to reduce FICO’s score volume by as much as one-third per application. This could directly impact revenue growth in the short term.

• Intensifying Antitrust Scrutiny: FICO is currently defending itself in the “In re FICO Antitrust Litigation” case, which addresses its distribution practices and “transmission fees.” While it’s early in the legal process, the outcome could have implications for FICO’s cost structure.

“On November 24, 2024, the court ruled on FICO’s and the credit bureaus’ motions to dismiss the plaintiffs’ amended complaints. The court dismissed with prejudice all claims in the lawsuit other than a Sherman Act Section 2 claim and accompanying state law claims against FICO, which were allowed to proceed through the discovery stage of the litigation. FICO intends to vigorously defend against the remaining claims in this proceeding.“ - FY25 Annual Report

• Software Segment Growing Pains: FICO’s transition to a SaaS model has not been entirely smooth. Despite strong growth in its Scores business, its Software segment grew a mere 2% in Q1 2026, possibly raising concerns among investors about the potential monetization lag this segment.

Part 1 – Understanding the Business

1.1. History: The Evolution of a Global Risk Standard

The story of Fair Isaac Corporation (FICO) is one of innovation, adaptation, and an unwavering commitment to shaping how credit risk is understood and quantified. From its humble beginnings in a small apartment to becoming a critical part of the global financial ecosystem, FICO has grown into the architect of the pervasive credit risk standard in the United States, serving thousands of businesses across over 100 countries. Let’s take a look at how this company evolved over the years to become a cornerstone of modern financial systems.

Founding and Early Innovations (1956–1980s)

Before we start with FICO itself, it’s worth highlighting how lending decisions were made historically – way back in the day! For most of the twentieth century, the world of credit was remarkably small, intimate, and – by today’s quantitative standards – frustratingly arbitrary. If you needed a loan to buy a home or expand a storefront, you didn’t appeal to an abstract score. You appealed to a person. Usually, this meant sitting across from a local bank manager who, at best, knew your family, your reputation, and perhaps even where you went to church. Decisions were built on a foundation of trust and familiarity that simply doesn’t scale in a modern economy. I find it fascinating how much weight was placed on a simple handshake.

If the manager liked your story, you were in. If he didn’t? You were out.

It was a gatekeeper’s paradise. There was no recourse and no objective data to prove him wrong.

This extreme subjectivity created a massive efficiency problem for the financial system. And because there was no standardized way to measure risk, lending was essentially a binary outcome. You either qualified for the prevailing interest rate or you were rejected entirely.

The concept of risk-based pricing – where you might pay a slightly higher rate because your profile is a bit thinner – simply didn’t exist yet. Everyone who was approved essentially paid the same price for capital. Think about that for a second. A doctor with twenty years of practice and a young baker starting her first shop would receive the same terms, provided they both cleared the manager’s subjective “trust” hurdle. This lack of nuance meant that banks were constantly leaving money on the table. They couldn’t comfortably lend to anyone outside their immediate social or geographic circle because they had no way to price that uncertainty. You were either a known quantity or a total mystery. There was no middle ground. It was an incredibly rigid way to run a national economy.

This brings us to Fair Isaac.

FICO’s journey began in 1956 when engineer Bill Fair and mathematician Earl Isaac – do you see where today’s name is coming from? –, both visionary thinkers, founded the company with a simple but powerful idea: to apply mathematical algorithms to make lending decisions more objective and standardized. The duo met at the Stanford Research Institute, and based on just $400 in personal investments (equivalent to approximately $5,000 today), they set up shop in a studio apartment in San Rafael, California.

In 1958, FICO achieved its first major milestone by selling its first credit scoring system to the American Investment Company (AIC). This was the beginning of a long journey toward mainstream adoption. Early on, these scoring systems were tailored to individual needs and were labor-intensive, often relying on physical paperwork and borrowed computers to process the data. Despite these challenges, it marked the birth of a product that would eventually reshape the credit industry.

The Equal Credit Opportunity Act of 1974 proved to be a pivotal moment in FICO’s growth. The legislation made it illegal to discriminate against applicants based on factors like gender or marital status, creating a powerful incentive for lenders to adopt more objective, data-driven methods of credit evaluation. FICO’s algorithmic scoring models provided a solution, helping lenders demonstrate that their decisions were merit-based and unbiased, thus propelling the company’s growth.

In the 1970s and 1980s, FICO expanded its reach as credit bureaus (nowadays officially known as Consumer Reporting Agencies or CRAs) – essentially, private companies that collect and manage data about your financial behavior – began consolidating. For context, by 1965, at the peak, the trade association for these companies (now known as the Consumer Data Industry Association) had over 2,200 members.

FICO recognized an opportunity to develop models that could be applied universally across different datasets. In 1981, they introduced “PreScore,” the first standardized credit bureau risk score, which laid the groundwork for the universally recognized FICO Score.

The company also went public in 1987 on the NYSE, marking a new chapter in its evolution.

Establishing the “Industry Standard” (1989–2011)

FICO’s true breakthrough came in 1989 with the introduction of the now-famous FICO Score, ranging from 300 to 850.

When researching FICO, I was asking myself why the score doesn’t start at zero. So I’ve looked into the origins of the FICO scale and realized that starting at zero would be a mathematical nightmare for lenders because it implies an absolute certainty of default. Bill Fair and Earl Isaac chose the 300–850 range to provide enough “ticks” on the scale for high–resolution risk assessment. This spread allows for a concept called log–odds, where small point increases represent a doubling of your creditworthiness.

As we’ve learned, before 1989, determining creditworthiness was essentially a Wild West of subjective judgment calls. When FICO finally introduced its standardized 300 – 850 range, it fundamentally rewired the plumbing of the American financial system. FICO’s algorithm effectively turned personal behavior into a quantifiable asset class. It relies on five distinct variables, but the heavy lifting comes from your payment history and total debt levels – accounting for 65% of the total weight. You see, the model prioritizes consistency over sheer net worth. It functions as a track record. One slip-up on a mortgage payment carries more weight than a decade of on-time utility bills.

The remaining fragments of the score – length of history, credit mix, and new inquiries – serve as the fine-tuning for risk assessment. I find it fascinating that the algorithm rewards complexity. If you only hold a single credit card, the system views you as an unproven entity. It wants to see you juggle different types of debt, like an installment loan alongside revolving credit, to prove you can handle diverse financial obligations. Applying for a flurry of new accounts usually triggers a red flag because it signals a sudden, desperate thirst for liquidity. Keep it steady. This balance between the age of your oldest accounts and the freshness of your new ones creates a profile that lenders can actually trade against. It changed everything.

FICO’s standardized score quickly became the go-to method for assessing credit risk. Lenders embraced the simplicity and reliability of this scoring system, and it became a key part of their decision-making process.

Then, FICO reached a watershed moment in 1995 when Fannie Mae and Freddie Mac, the U.S. government-sponsored entities (GSEs), required the use of the FICO Score for all conforming mortgage originations. This move solidified FICO’s position as the industry standard, as it became the “lingua franca” of credit risk, enabling the mass securitization of debt. Investors demanded a consistent and reliable benchmark to assess loan pools, and FICO’s scoring system met that need.

Throughout the 1990s and 2000s, FICO diversified its offerings beyond credit scoring. The company expanded into decision software with the launch of products like Falcon Fraud Manager, a tool that now protects around two-thirds of all credit card transactions worldwide. This diversification helped FICO cement its reputation as not just a score provider, but as a comprehensive risk management partner for businesses.

Leadership Change and Strategic Pivot (2012–Present)

A significant shift occurred in 2012 when William J. Lansing was appointed CEO. Under Lansing’s leadership, FICO embarked on a path of modernization and aggressive monetization. This shift paid off in a big way: by 2023, the company’s stock price had increased approximately sixteen-fold. Lansing’s strategic vision positioned FICO to capitalize on both its legacy business and new growth opportunities in cloud-based software.

Importantly, for nearly three decades, FICO kept its prices largely unchanged, prioritizing widespread adoption. However, in 2018, the company began a strategic pricing shift, particularly in the mortgage sector. The price of wholesale mortgage scores jumped from around $0.60 to nearly $5.00 by 2025 – an 800% increase! This dramatic pricing move, although controversial, is a reflection of FICO’s growing recognition of the immense value it provides in the financial ecosystem.

FICO’s leadership recognized the growing importance of cloud-based technologies and embarked on a massive, multi-year investment to transition from legacy on-premises solutions to the cloud-native FICO Platform. As part of this transformation, FICO also divested non-strategic businesses such as its Cyber Risk Score (2020), Collections and Recovery (2021), and Siron compliance (2023).

This focus on cloud-based software has set the stage for FICO’s future growth, with Annual Recurring Revenue (ARR) from platform-specific offerings growing at over 30% annually.

To align its operations with the new platform-first strategy, FICO merged its Applications and Decision Management Software segments into a unified Software segment in 2021.

This consolidation aimed to streamline operations and improve the company’s focus on its evolving cloud-based platform. In 2022, Stephanie Covert was appointed as the first leader of the newly unified software group, bringing fresh leadership to an increasingly complex and global business.

Challenges and Strategic Controversies

The 2008–2009 financial crisis was a difficult period for FICO, as lenders pulled back on extending credit in the wake of the housing crash. This resulted in a nearly 27% drop in Scores revenue, highlighting the company’s sensitivity to economic downturns. However, FICO’s adaptability and position in the credit risk ecosystem allowed it to rebound in the years following the crisis.

In 2022, the Federal Housing Finance Agency (FHFA) approved the use of VantageScore 4.0 for GSE mortgages, ending FICO’s long-standing monopoly on GSE-originated loans.

This regulatory change, which introduced a “Lender Choice” model, has posed a significant challenge to FICO’s traditional business model. The company has responded by promoting its more predictive FICO 10T model and introducing the Mortgage Direct License Program in 2025 to circumvent traditional credit bureau distribution channels.

FICO’s pricing model has come under increasing scrutiny in recent years. The company’s aggressive price hikes and “transmission fees” – charges imposed on credit bureaus for delivering FICO scores – have led to legal battles, including the ongoing “In re FICO Antitrust Litigation.” Additionally, U.S. lawmakers have raised concerns about potential price gouging in the mortgage market. These legal and regulatory challenges could pose risks to FICO’s growth and profitability.

There’s, of course, more to all of this, and we will discuss the FHFA’s shift and the risk it presents to FICO in depth in part 5 (risks).

Finally, FICO has faced criticism for its models, which some argue may disadvantage groups with limited credit histories. In response, the company has focused on broadening financial inclusion by investing more than 50% of its Scores R&D into products designed to include individuals with limited credit history, such as UltraFICO and FICO Score XD.

1.2. Product

FICO, a leader in credit risk management, operates through two primary reportable segments:

• Scores and

• Software

Both of which can be further subdivided.

These segments, though distinct, are deeply interconnected, with each contributing significantly to the company’s overall growth and profitability.

Below you find the overall revenue contribution of each segment for the last seven fiscal years and the respective YoY growth rates.

Let’s explore the products and services FICO offers, and how they stand out in a competitive market.

The full analysis starts here:

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More broadly, Charlie Munger’s principle of “inversion” reminds us to consider what could go wrong before assuming everything will go smoothly.

For FICO, the current regulatory landscape is a key area of concern. As the company faces mounting scrutiny from the FHFA and lawmakers over its pricing strategies, there’s a growing risk that the once-impenetrable tollbooth business model could be undermined by regulatory and competitive changes.

These pressures are likely to shape future growth expectations (which we will need for our final part focused on valuing this business) and will require investors to reassess how much pricing power FICO can wield in the future without attracting too much pushback.

So again, in this part, we’ll thus dig deep into FICO’s balance sheet, the intricacies of the regulatory headwinds, AI risk, and much more.

Start with part 1 here:

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I’m focusing this second part of our analysis (6,500 words) on everything you need to know about the quality of the business itself, specifically its competitive advantages and the people calling the shots from the C-suite. So without further ado, let’s get into it:

As a reminder, here’s what I will cover in this deep dive series:

• “BAM BAM BAM BAM BAM” 90-Second Pitch – Why Fair Isaac and Why Now?

• 1) Understanding the Business

  • 1.1. Business History

  • 1.2. Product

  • 1.3. Business Operations

  • 1.4. Customers

  • 1.5. Industry & Competitive Landscape

• 2) Business Quality

  • 2.1. Competitive Advantages Analysis

  • 2.2. Other Thoughts on Business Quality

• 3) Management and Governance

  • 3.1. Management Background

  • 3.2. Integrity, Incentives, and Compensation

  • 3.3. Capital Allocation

  • 3.4. Management Roasting

• 4) Financial Health

  • 4.1. Balance Sheet Health

  • 4.2. Operating Perspective

  • 4.3. Off-Balance Sheet Items & Hidden Risks

• 5) Risks

  • 5.1. Inversion

  • 5.2. VantageScore vs. FICO: Is the Credit Scoring Giant Losing Its Grip?

• 6) Other Items

• 7) Valuation

  • 7.1. Past Growth

  • 7.2. Future Growth (including a TAM analysis and identifying key growth drivers)

  • 7.3. Valuation Work

• Fun Fact

• Appendix

Disclaimer: The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Part 2 – Business Quality

2.1. Competitive Advantage Analysis

The Tollbooth Model

Based on the understanding of FICO’s business model that we developed in part 1, I want to start this “competitive advantage discussion” with a more general observation:

The “financial tollbooth” model is a powerful and enduring business model that continues to create clear winner-takes-all or winner-takes-most dynamics in many industries. Companies like S&P Global, Wise, LSEG’s clearing business, Moody’s, MSCI, CME Group, and Mastercard/Visa are all prime examples of businesses that sit at the heart of the financial system, taking a small fee every time money moves or decisions are made. These tollbooths thrive because they are embedded into the system itself – they don’t manufacture physical goods or take on significant capital expenditures, yet they continue to enjoy exceptional margins and stable, recurring revenue streams.

Their fees, often a tiny percentage of a much larger transaction, are largely invisible to end-users, making them highly efficient revenue generators. And the best part? Once these tollbooths are in place, they benefit from tremendous scalability with minimal ongoing investment.

For FICO, its tollbooth model is equally powerful. It’s embedded at the very heart of the U.S. credit and mortgage markets. In 2025, FICO scores were used in over 90% of top U.S. lending decisions. Each time a consumer applies for a loan, buys a car, or even rents an apartment, a FICO score is used to assess their creditworthiness. Just like Visa and Mastercard, FICO charges a small fee (typically only about 0.2% of the average mortgage closing cost) every time a transaction occurs. With its status as the de facto standard in U.S. credit risk assessment, FICO remains indispensable.

Similar to MSCI, FICO’s pricing power and dominance in the industry are underpinned by its cultural and regulatory embeddedness. FICO scores are so deeply woven into the financial fabric that they are the primary measure of risk in the U.S. mortgage industry, where 98.8% of all U.S. mortgage-backed securities rely on FICO scores for risk assessment.

Despite these advantages, FICO’s position in the financial tollbooth space is not without its risks. While VantageScore, a joint venture of the three major U.S. credit bureaus (Experian, TransUnion, and Equifax), has been working to challenge FICO’s dominance, the competitive dynamics in the industry – at least so far – are still structured in a way that benefits FICO. The credit scoring market, much like other financial tollbooths, exhibits clear winner-takes-all or winner-takes-most characteristics.

We embedded this FICO management comment from 2025 in part one, explaining the nature of this industry structure:

“As for lender choice, the FHFA has long rejected the practice because it undermines the safety and soundness of the enterprises and their counterparties, damaging liquidity in the $12 trillion mortgage industry. Lender choice encourages mortgage participants to shop for the most [ lax score, which drives unavoidable gaming and adverse selection for all risk holders“

And today I stumbled across this comment by Akre Capital (especially known to be a long-term Moody’s shareholder), who made a similar point:

“Allowing lenders to cherry-pick a single score creates “rating shopping,” selecting the highest score rather than the most accurate or most accepted. This leads to an adverse-selection problem for consumer-credit investors. FICO’s dominance is a market-driven outcome because it is the score demanded by investors."

In short, once a standard is established, it is extremely difficult to get a competing standard off the ground.

The industry structure is worth noting, as FICO’s tollbooth model shares characteristics with other leading firms like S&P Global and Moody’s in debt markets or CME Group in futures and commodities trading. These companies, much like FICO, charge fees each time a decision is made, whether it’s through credit ratings, securitization, or trade execution. Their economic model is brilliant in its simplicity – asset-light, with virtually all revenue flowing to the bottom line. Unsuprisingly, their stocks crushed it over the last 20 years.

CME Group, for instance, benefits when market volatility increases, as more trading activity translates into higher revenues. MSCI, meanwhile, has a different spin on the tollbooth model. By charging a small fee on trillions of dollars tied to financial benchmarks, MSCI’s pricing power remains largely invisible to individual users, making it extremely durable and less sensitive to regulatory pushback.

In FICO’s case, the risk to its tollbooth model stems from growing competition within the Scores segment and its increasing vulnerability to pricing scrutiny. While it has successfully raised prices for mortgage scores by 1,600% between 2022 and 2026, the pressure from the credit bureaus, which now act as both partners and competitors in the space, is intensifying. The recent approval of VantageScore 4.0 for use in government-backed mortgages by the FHFA in July 2025 is a pivotal development, undermining FICO’s monopolistic pricing power. This move is significant as it potentially opens the door for lenders to diversify their score sources, potentially squeezing FICO’s ability to maintain its past pricing leverage.

Despite these threats, FICO’s business model remains incredibly resilient. Its “tollbridge” strategy, similar to that of companies like Verisk Analytics (which serves the insurance industry) continues to generate exceptional margins. These businesses all share a common trait: they operate as essential intermediaries in systems that are difficult to disrupt.

A Powerful Industry Standard

This is where it gets interesting

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Every year, Fair Isaac Corporation – better known as FICO – sells over 10 billion scores (which translates to approximately 27 million scores purchased daily).. To put that in perspective, that is roughly 40 times the number of iPhones Apple ships to the entire world in a year and nearly double the total number of passengers who board a commercial flight globally.

It is the de facto passport for financial mobility, used in 90% of all top U.S. lending decisions and serving as the primary measure of risk for over 12 trillion dollars in U.S. mortgage debt.

If you want a mortgage, an auto loan, or even to rent an apartment, you aren’t just a person – you are a three-digit number owned by a company that started in a studio apartment in 1956 with 400 dollars and a radical dream of replacing “handshake-and-vibes” lending with objective algorithms.

In this multi-part deep dive, I want to pull back the curtain on the most efficient toll-bridge in global finance (88% EBIT margins in the Scores segment), and why its supposedly certain downfall was just derailed by a massive regulatory reversal.

I find it fascinating how few people realize the sheer, unchecked pricing power FICO wields. Between 2022 and 2025, the company did something that would be a death sentence for almost any other business – and it brought its fair set of challenges to FICO too, to be fair. It raised the price of its mortgage scores from roughly 0.60 to 4.95 dollars by 2025. That is an 800% increase in just three years. And then again to $10.00 (or $4.95 + $33 Success Fee) for 2026 – another 2x increase.

Imagine your internet provider or utility company jacking up rates by eight times; there would be a congressional inquiry by sunset.

Yet, because FICO is the “universal language” of the mortgage market – cited in 98.8% of all securitizations – lenders simply paid the toll. The financials are the stuff of legend. The company’s core Scores segment operates with 88% operating margins. Even more staggering is the “95% Rule” – for every new dollar of revenue FICO generates through these price hikes, nearly 95 cents drop straight to the bottom line.

As of FY2024, the company turned 1.72 billion dollars in revenue into more 600 million dollars of free cash flow. It is a capital-light compounding machine that requires no factories. It is pure risk math.

For the last 1-2 years, the primary “bear case” for FICO was built on the threat of “Lender Choice” – a regulatory push to break the monopoly by allowing competitors like VantageScore into the ecosystem. The plan was to move from a “tri-merge” (where lenders pull scores from all three bureaus) to a “bi-merge” (where they only pull two). This would have effectively stripped FICO of its guaranteed seat at the table. But everything changed in July 2025. In what some have dubbed the “Pulte Pivot,” FHFA Director Bill Pulte unexpectedly maintained the tri-merge requirement, effectively pulling all three bureaus and slamming the door on the bi-merge transition. This move preserved the existing plumbing of the mortgage market and cemented FICO’s dominance just as the market thought the “invisible engine” was about to be dismantled.

Given the excessive price hikes, this doesn’t mean the regulatory risk is “done” though.

Is the Largest Drawdown Since 2008 an Opportunity?

The world looks significantly more volatile than it did even a few months ago. The ongoing war with Iran has sent geopolitical shockwaves through every asset class, and we are now staring down a macro environment where inflation is expected to skyrocket.

Market sentiment has turned decidedly cold. FICO is currently experiencing its largest drawdown since the Great Financial Crisis, with the stock falling 52.67% from its peak.

I see a market growing increasingly cautious around credit risk, fueled by concerns over debt exposure at firms like Blue Owl ($OWL) and Oracle ($ORCL). This anxiety may have contributed to the drag on FICO’s valuation, down to 25.1x NTM P/E and 18.8x EV/EBIT – well below its five-year mean of 31.5x.

You have to ask yourself: is this a warning of a broader credit event, or a generational buying opportunity for a monopoly?

So in this deep dive series, I’ll explore how FICO is positioned to navigate this era of stagflation and war, and whether the “high beams” of federal regulators are still a threat after the Pulte Pivot.

In this first part, we cover the business’s history, the business model, its products, and competitive environment (11,000 words in total).

Here’s what I will cover in this deep dive series:

• “BAM BAM BAM BAM BAM” 90-Second Pitch – Why Fair Isaac and Why Now?

• 1) Understanding the Business

  • 1.1. Business History

  • 1.2. Product

  • 1.3. Business Operations

  • 1.4. Customers

  • 1.5. Industry & Competitive Landscape

• 2) Business Quality

  • 2.1. Competitive Advantages Analysis

  • 2.2. Other Thoughts on Business Quality

• 3) Management and Governance

  • 3.1. Management Background

  • 3.2. Integrity, Incentives, and Compensation

  • 3.3. Capital Allocation

  • 3.4. Management Roasting

• 4) Financial Health

  • 4.1. Balance Sheet Health

  • 4.2. Operating Perspective

  • 4.3. Off-Balance Sheet Items & Hidden Risks

• 5) Risks

  • 5.1. Inversion

  • 5.2. VantageScore vs. FICO: Is the Credit Scoring Giant Losing Its Grip?

• 6) Other Items

• 7) Valuation

  • 7.1. Past Growth

  • 7.2. Future Growth (including a TAM analysis and identifying key growth drivers)

  • 7.3. Valuation Work

• Fun Fact

• Appendix

Disclaimer: The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

High-Level Thesis: “Bam Bam Bam Bam Bam”-90 Second-Hypothesis

When you think of the stock market, one of the biggest challenges is quickly determining whether a business truly has potential. As my regular readers know, Bill Miller, legendary investor, is known for his “Bam Bam Bam Bam Bam” approach to pitching stocks – which I’ve shamelessly copied.

In essence, it’s a quick pitch that gets straight to the point: Why is this a great business? Miller’s style demands clarity and precision, with just five reasons why an investment could make sense. So, let’s apply this framework to Fair Isaac Corporation (FICO), a company that may not be on everyone’s radar, but absolutely should be.

Here we go …

• BAM #1 – Indispensable Industry Standard: FICO’s scores are the industry standard. In fact, 90% of top U.S. lending decisions use FICO scores. Beyond that, FICO scores dominate the secondary market for securitizations, with 98.8% of U.S. securitizations – a financial process that pools income-generating assets (such as mortgages, auto loans, or credit card debt) and converts them into marketable securities – using FICO to communicate credit risk to investors. This is a business that has become synonymous with credit risk, and replacing FICO would be like changing the engine of a plane mid-flight – a daunting task.

• BAM #2 – Unmatched Pricing Power & Value Gap: FICO is in the midst of a remarkable pricing transformation. After decades of keeping prices flat, FICO raised its wholesale mortgage score price from about $0.60 to $4.95 by 2025 – an eye-popping 800% increase –, and $10 by 2026. Despite this hike, FICO’s fee still represents a negligible 0.2% of average mortgage closing costs. This leaves ample room for further price hikes – at least if you have a long-term view (less so in the near term) – without significantly impacting volume.

• BAM #3 – Elite Margin Profile: FICO’s Scores segment boasts near-monopoly margins, with 88% – yes, you read that right! – operating margins in Q1 2026. The key here is the low incremental cost structure: the core algorithms, developed decades ago (but frequently updated), require minimal investment to scale. That means when FICO raises prices or increases volume, almost every new dollar drops straight to the bottom line.

• BAM #4 – Strategic SaaS Transformation: FICO is transitioning its Software business from legacy on-premises applications to a cloud-native platform. This transformation is paying off, with platform-specific Annual Recurring Revenue (ARR) growing at over 30% in Q1. The company’s “land and expand” strategy is also working well, with existing customers spending significantly more as they adopt new decision-making use cases. This positions FICO for long-term growth in the SaaS space.

• BAM #5 – Aggressive, Shareholder-Aligned Capital Return: FICO has used its cash flows to buy back stock aggressively, reducing its share count by 30% over the past decade, leading to incredibly fast profit per share growth. In fiscal 2025 alone, the company returned $1.4 billion to shareholders via buybacks.

This strategy has led to a stellar 18% EPS CAGR over the last 13 years, far outpacing its 8-9% revenue growth (not per share revenue growth as displayed in the chart below). Simply put, FICO is showing its commitment to delivering value to shareholders.

As we enter 2026, FICO finds itself at a rare entry point. The stock has experienced a 52% price drop from its highs, making it a possibly attractive buy for long-term investors.

So why the drop?

What Went Wrong?

Despite FICO’s strong business fundamentals, the company hasn’t been immune to challenges. The key issues that have weighed on the stock recently are:

1. Regulatory Breach of the Monopoly: The FHFA’s formal transition to a “Lender Choice” model has opened the door for VantageScore 4.0 to compete directly with FICO in the market for Fannie Mae and Freddie Mac loans. While this introduces competition and substitution risk, it’s not an existential threat to FICO’s dominance – yet.

2. Volume and Revenue Contraction Risks: The potential shift from a “tri-merge” model, requiring three credit scores, to a “bi-merge” model, requiring only two, has the potential to reduce FICO’s score volume by as much as one-third per application. This could directly impact revenue growth in the short term.

3. Intensifying Antitrust Scrutiny: FICO is currently defending itself in the “In re FICO Antitrust Litigation” case, which addresses its distribution practices and “transmission fees.” While it’s early in the legal process, the outcome could have implications for FICO’s cost structure.

   “On November 24, 2024, the court ruled on FICO’s and the credit bureaus’ motions to dismiss the plaintiffs’ amended complaints. The court dismissed with prejudice all claims in the lawsuit other than a Sherman Act Section 2 claim and accompanying state law claims against FICO, which were allowed to proceed through the discovery stage of the litigation. FICO intends to vigorously defend against the remaining claims in this proceeding.“ - FY25 Annual Report

4. Software Segment Growing Pains: FICO’s transition to a SaaS model has not been entirely smooth. Despite strong growth in its Scores business, its Software segment grew a mere 2% in Q1 2026, possibly raising concerns among investors about the potential monetization lag this segment.

Part 1 – Understanding the Business

1.1. History: The Evolution of a Global Risk Standard

The story of Fair Isaac Corporation (FICO) is one of innovation, adaptation, and an unwavering commitment to shaping how credit risk is understood and quantified. From its humble beginnings in a small apartment to becoming a critical part of the global financial ecosystem, FICO has grown into the architect of the pervasive credit risk standard in the United States, serving thousands of businesses across over 100 countries. Let’s take a look at how this company evolved over the years to become a cornerstone of modern financial systems.

Founding and Early Innovations (1956–1980s)

Before we start with FICO itself, it’s worth highlighting how lending decisions were made historically – way back in the day! For most of the twentieth century, the world of credit was remarkably small, intimate, and – by today’s quantitative standards – frustratingly arbitrary. If you needed a loan to buy a home or expand a storefront, you didn’t appeal to an abstract score. You appealed to a person. Usually, this meant sitting across from a local bank manager who, at best, knew your family, your reputation, and perhaps even where you went to church. Decisions were built on a foundation of trust and familiarity that simply doesn’t scale in a modern economy. I find it fascinating how much weight was placed on a simple handshake.

If the manager liked your story, you were in. If he didn’t? You were out.

It was a gatekeeper’s paradise. There was no recourse and no objective data to prove him wrong.

This extreme subjectivity created a massive efficiency problem for the financial system. And because there was no standardized way to measure risk, lending was essentially a binary outcome. You either qualified for the prevailing interest rate or you were rejected entirely.

The concept of risk-based pricing – where you might pay a slightly higher rate because your profile is a bit thinner – simply didn’t exist yet. Everyone who was approved essentially paid the same price for capital. Think about that for a second. A doctor with twenty years of practice and a young baker starting her first shop would receive the same terms, provided they both cleared the manager’s subjective “trust” hurdle. This lack of nuance meant that banks were constantly leaving money on the table. They couldn’t comfortably lend to anyone outside their immediate social or geographic circle because they had no way to price that uncertainty. You were either a known quantity or a total mystery. There was no middle ground. It was an incredibly rigid way to run a national economy.

This brings us to Fair Isaac.

FICO’s journey began in 1956 when engineer Bill Fair and mathematician Earl Isaac – do you see where today’s name is coming from? –, both visionary thinkers, founded the company with a simple but powerful idea: to apply mathematical algorithms to make lending decisions more objective and standardized. The duo met at the Stanford Research Institute, and based on just $400 in personal investments (equivalent to approximately $5,000 today), they set up shop in a studio apartment in San Rafael, California.

In 1958, FICO achieved its first major milestone by selling its first credit scoring system to the American Investment Company (AIC). This was the beginning of a long journey toward mainstream adoption. Early on, these scoring systems were tailored to individual needs and were labor-intensive, often relying on physical paperwork and borrowed computers to process the data. Despite these challenges, it marked the birth of a product that would eventually reshape the credit industry.

The Equal Credit Opportunity Act of 1974 proved to be a pivotal moment in FICO’s growth. The legislation made it illegal to discriminate against applicants based on factors like gender or marital status, creating a powerful incentive for lenders to adopt more objective, data-driven methods of credit evaluation. FICO’s algorithmic scoring models provided a solution, helping lenders demonstrate that their decisions were merit-based and unbiased, thus propelling the company’s growth.

In the 1970s and 1980s, FICO expanded its reach as credit bureaus (nowadays officially known as Consumer Reporting Agencies or CRAs) – essentially, private companies that collect and manage data about your financial behavior – began consolidating. For context, by 1965, at the peak, the trade association for these companies (now known as the Consumer Data Industry Association) had over 2,200 members.

FICO recognized an opportunity to develop models that could be applied universally across different datasets. In 1981, they introduced “PreScore,” the first standardized credit bureau risk score, which laid the groundwork for the universally recognized FICO Score.

The company also went public in 1987 on the NYSE, marking a new chapter in its evolution.

Establishing the “Industry Standard” (1989–2011)

FICO’s true breakthrough came in 1989 with the introduction of the now-famous FICO Score, ranging from 300 to 850.

When researching FICO, I was asking myself why the score doesn't start at zero. So I’ve looked into the origins of the FICO scale and realized that starting at zero would be a mathematical nightmare for lenders because it implies an absolute certainty of default. Bill Fair and Earl Isaac chose the 300–850 range to provide enough "ticks" on the scale for high–resolution risk assessment. This spread allows for a concept called log–odds, where small point increases represent a doubling of your creditworthiness.

As we’ve learned, before 1989, determining creditworthiness was essentially a Wild West of subjective judgment calls. When FICO finally introduced its standardized 300 – 850 range, it fundamentally rewired the plumbing of the American financial system. FICO’s algorithm effectively turned personal behavior into a quantifiable asset class. It relies on five distinct variables, but the heavy lifting comes from your payment history and total debt levels – accounting for 65% of the total weight. You see, the model prioritizes consistency over sheer net worth. It functions as a track record. One slip-up on a mortgage payment carries more weight than a decade of on-time utility bills.

The remaining fragments of the score – length of history, credit mix, and new inquiries – serve as the fine-tuning for risk assessment. I find it fascinating that the algorithm rewards complexity. If you only hold a single credit card, the system views you as an unproven entity. It wants to see you juggle different types of debt, like an installment loan alongside revolving credit, to prove you can handle diverse financial obligations. Applying for a flurry of new accounts usually triggers a red flag because it signals a sudden, desperate thirst for liquidity. Keep it steady. This balance between the age of your oldest accounts and the freshness of your new ones creates a profile that lenders can actually trade against. It changed everything.

FICO’s standardized score quickly became the go-to method for assessing credit risk. Lenders embraced the simplicity and reliability of this scoring system, and it became a key part of their decision-making process.

Then, FICO reached a watershed moment in 1995 when Fannie Mae and Freddie Mac, the U.S. government-sponsored entities (GSEs), required the use of the FICO Score for all conforming mortgage originations. This move solidified FICO’s position as the industry standard, as it became the “lingua franca” of credit risk, enabling the mass securitization of debt. Investors demanded a consistent and reliable benchmark to assess loan pools, and FICO’s scoring system met that need.

Throughout the 1990s and 2000s, FICO diversified its offerings beyond credit scoring. The company expanded into decision software with the launch of products like Falcon Fraud Manager, a tool that now protects around two-thirds of all credit card transactions worldwide. This diversification helped FICO cement its reputation as not just a score provider, but as a comprehensive risk management partner for businesses.

Leadership Change and Strategic Pivot (2012–Present)

A significant shift occurred in 2012 when William J. Lansing was appointed CEO. Under Lansing’s leadership, FICO embarked on a path of modernization and aggressive monetization. This shift paid off in a big way: by 2023, the company’s stock price had increased approximately sixteen-fold. Lansing’s strategic vision positioned FICO to capitalize on both its legacy business and new growth opportunities in cloud-based software.

Importantly, for nearly three decades, FICO kept its prices largely unchanged, prioritizing widespread adoption. However, in 2018, the company began a strategic pricing shift, particularly in the mortgage sector. The price of wholesale mortgage scores jumped from around $0.60 to nearly $5.00 by 2025 – an 800% increase! This dramatic pricing move, although controversial, is a reflection of FICO’s growing recognition of the immense value it provides in the financial ecosystem.

FICO’s leadership recognized the growing importance of cloud-based technologies and embarked on a massive, multi-year investment to transition from legacy on-premises solutions to the cloud-native FICO Platform. As part of this transformation, FICO also divested non-strategic businesses such as its Cyber Risk Score (2020), Collections and Recovery (2021), and Siron compliance (2023).

This focus on cloud-based software has set the stage for FICO’s future growth, with Annual Recurring Revenue (ARR) from platform-specific offerings growing at over 30% annually.

To align its operations with the new platform-first strategy, FICO merged its Applications and Decision Management Software segments into a unified Software segment in 2021.

This consolidation aimed to streamline operations and improve the company’s focus on its evolving cloud-based platform. In 2022, Stephanie Covert was appointed as the first leader of the newly unified software group, bringing fresh leadership to an increasingly complex and global business.

Challenges and Strategic Controversies

The 2008–2009 financial crisis was a difficult period for FICO, as lenders pulled back on extending credit in the wake of the housing crash. This resulted in a nearly 27% drop in Scores revenue, highlighting the company’s sensitivity to economic downturns. However, FICO’s adaptability and position in the credit risk ecosystem allowed it to rebound in the years following the crisis.

In 2022, the Federal Housing Finance Agency (FHFA) approved the use of VantageScore 4.0 for GSE mortgages, ending FICO’s long-standing monopoly on GSE-originated loans.

This regulatory change, which introduced a “Lender Choice” model, has posed a significant challenge to FICO’s traditional business model. The company has responded by promoting its more predictive FICO 10T model and introducing the Mortgage Direct License Program in 2025 to circumvent traditional credit bureau distribution channels.

FICO’s pricing model has come under increasing scrutiny in recent years. The company’s aggressive price hikes and “transmission fees” – charges imposed on credit bureaus for delivering FICO scores – have led to legal battles, including the ongoing “In re FICO Antitrust Litigation.” Additionally, U.S. lawmakers have raised concerns about potential price gouging in the mortgage market. These legal and regulatory challenges could pose risks to FICO’s growth and profitability.

There’s, of course, more to all of this, and we will discuss the FHFA’s shift and the risk it presents to FICO in depth in part 5 (risks).

Finally, FICO has faced criticism for its models, which some argue may disadvantage groups with limited credit histories. In response, the company has focused on broadening financial inclusion by investing more than 50% of its Scores R&D into products designed to include individuals with limited credit history, such as UltraFICO and FICO Score XD.

1.2. Product

FICO, a leader in credit risk management, operates through two primary reportable segments:

• Scores and

• Software

Both of which can be further subdivided.

These segments, though distinct, are deeply interconnected, with each contributing significantly to the company’s overall growth and profitability.

Below you find the overall revenue contribution of each segment for the last seven fiscal years and the respective YoY growth rates.

Let’s explore the products and services FICO offers, and how they stand out in a competitive market.

The full analysis starts here:

The rest of this post and the follow-up parts of this deep dive series will cover the topics outlined in the table of contents displayed in the introduction. If you’re serious about sharpening your investing edge, the full post (and all my previous premium content, including valuation spreadsheets, deep dives (e.g. well-known mid- and large caps such as LVMH, Duolingo, Meta, Edenred as well as more hidden gems such as Tiger Brokers, Digital Ocean, Ashtead Technologies, InPost, Timee, and MANY more) and powerful investing frameworks. is just a click away. Upgrade your subscription, support my work, and keep learning.

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The market is treating this like a commodity-type legacy business in decline, but the numbers tell a different story (>40% revenue growth YoY).

Let me tell you more about this business.

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