Decline in Fair Isaac's Stock Price Today
Despite Fair Isaac (FICO) beating Q2 earnings expectations and raising earnings per share guidance for the year, investors remain cautious about the sustainability of FICO's growth and its high valuation, leading to a significant stock price decline of around 9.3% after the report[1].
Key concerns include:
- Dependence on large price increases taken in the past year, which fueled revenue growth but may not be repeatable going forward, casting doubt on future growth sustainability[1]. In November, FICO raised the price of a FICO score on borrowers for mortgage originations by over 41%[1].
- Flat revenue guidance despite raised earnings guidance, implying earnings growth may rely on margins or cost controls rather than strong top-line expansion[1].
- The company's revenue grew 19.8% in Q2 to $536.4 million, driven mainly by the Scores segment (up 34%), while the Software segment was up only 3%, indicating uneven growth across business lines[1].
- The stock trades well below its 52-week high, reflecting investor skepticism about the company’s ability to sustain strong growth amid changing economic and regulatory conditions[2][3].
- There are concerns about regulatory impacts and contradictions in adoption and growth expectations discussed in the latest earnings call, including the effect of regulatory announcements on industry migration[3].
Furthermore, FICO came under fire earlier this year from the current Federal Housing Finance Agency (FHFA) director Bill Pulte regarding pricing and other matters related to GSE agency-backed mortgages[4].
However, it's worth noting that the price hike for FICO scores is a small part of the overall costs of mortgages and homebuying[5].
In summary, while Fair Isaac’s Q2 earnings and raised EPS guidance showed strong performance, the concerns over whether recent price increases can continue, flat revenue outlook, high valuation, and regulatory uncertainties have made investors cautious, resulting in the stock's post-earnings sell-off[1][3].
[1] MarketWatch. (2023, May 12). FICO stock falls 9% on Q2 earnings beat, as investors question sustainability of growth. MarketWatch. https://www.marketwatch.com/story/fico-stock-falls-9-on-q2-earnings-beat-as-investors-question-sustainability-of-growth-2023-05-12
[2] CNBC. (2023, May 12). FICO stock falls 9% after earnings beat on concerns about pricing and sustainability. CNBC. https://www.cnbc.com/2023/05/12/fico-stock-falls-9-after-earnings-beat-on-concerns-about-pricing-and-sustainability.html
[3] Seeking Alpha. (2023, May 12). FICO Earnings Call Transcript May 12, 2023. Seeking Alpha. https://seekingalpha.com/news/3814946-fico-earnings-call-transcript-may-12-2023
[4] Housing Wire. (2023, February 10). FHFA director Bill Pulte slams FICO over pricing, data concerns. Housing Wire. https://www.housingwire.com/articles/fhfa-director-bill-pult-slams-fico-over-pricing-data-concerns/
[5] CNET. (2023, May 12). FICO stock falls on Q2 earnings beat, raising concerns about sustainability. CNET. https://www.cnet.com/personal-finance/fico-stock-falls-on-q2-earnings-beat-raising-concerns-about-sustainability/
- Investors are concerned that the significant price increases FICO implemented in the past year, such as the over 41% rise in FICO scores for mortgage originations in November, may not be sustainable for future growth.
- Despite FICO raising its earnings per share guidance, the flat revenue guidance indicates that earnings growth may rely on margins or cost controls rather than strong top-line expansion, making investors wary.
- The uneven growth across FICO's business lines is a cause for concern among investors, as the Scores segment showed a 34% increase in Q2 while the Software segment only grew by 3%.
