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FICO Final 際際滷s
- 1. Fair Isaac Corporation (FICO) Senior Analyst: Cole Secor Junior Analysts: Arjun Aggarwal, Matthew Cohen, Aditi Dass, Kirstin Fong, Matthew Soriento 1
- 2. 2 BUY
- 6. 6 Market Segmentation 則 The financial sector represents the largest market segment Includes commercial banks, retail banks, and brokerage firms 則 Public sector is another large contributor to market revenue Ranges from national security to welfare 則 Information sector accounts for the third largest segment of revenue Continued growth as more and more companies move data into digital forms 則 Insurance and Healthcare sector widely uses fraud detection software to detect fraudulent claims
- 8. 8 Company Overview 則 Use analytics to help businesses automate, improve and connect decisions across their enterprise, an approach we commonly refer to as decision management. 則 Applications: Pre-configured decision management applications designed for a specific type of business problem or process. 則 Tools: Composed of analytic and decision management software tools. 則 Scores: Business-to-business scoring solutions and services, our myFICO速 solutions for consumers, and associated professional services Applications 63% Scores 25% Tools 12%
- 9. 9 Total E-CommerceSales Growth 則 As electronic payment transaction volumes increase with consumers increasingly using the internet for a diverse range of services, such as online shopping, online trading and online banking, the risk of theft and fraud over the internet rises. 則 Extremely strong correlation between E-Commerce volume and FICO revenue growth since 2011 R2 of .96273 則 FICO速 Big Data Analyzer 則 FICO速 Data Management Integration Platform Streaming analytics and real-time distributed processing platform. The fraud detection industry will continue to grow as the amount of E-Commerce traffic volume increases. Years Percent Growth 2006 - 2007 26% 2007 - 2008 10% 2008 - 2009 32% 2009 - 2010 10% 2010 - 2011 26% 2011 - 2012 19% 2012 - 2013 10% CAGR: 19.06%* *Since 2006 Source: Bloomberg, IBIS World, Yahoo Finance
- 10. 10 Applications Segment Op. Income 則 Growth has slowed from 12.2% in 2013 則 $22m Revenue Growth, $31.9m Cost Growth Company is expecting the costs to level off 則 Driven by higher salaries and an increase in the cost of professional deliveries 則 Partially offset by an increase in sales of higher-margin software products - 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Applications Growth Applications Op Income A startling slow-down in the companys cash cow segment must be watched closely. Source: Bloomberg, IBIS World, Yahoo Finance
- 11. 11 Predictive Modeling 則 Predictive Modeling. FICO速 Model Central Represents underlying relationships in historical data in order to explain the data and make predictions or classifications about future events. Rank-order individuals by likely future performance models that detect the likelihood of a transaction being fraudulent. 則 Fraud Detection segment grew $17.3m 則 Currently a $2.74 Billion industry 則 FICO is capturing 81% of the industry 則 Predicted industry revenue of $9.2B by 2020 則 27.4% growth per year for 5 years FICO 19% Competitiors 81% Predictive Modeling Industry FICO is dominating the predictive modeling industry. The industry expects to grow 27% per year for the next 5 years. Source: Bloomberg, IBIS World, Yahoo Finance
- 12. 12 Chip Inclusion in Debit and Credit Cards 則 The new credit and debit smartcards use an encrypted chip rather than a magnetic stripe, reducing electronic payment fraud. 則 U.S. fraud rate expected to follow Canadas dramatic decrease. 則 Industry will need to rely on a continuing growth from other areas of fraud within the U.S. and Canada 則 In every country that has switched to EMV cards, online fraud has jumped. Aite Group 則 UK saw a 79% increase in online fraud once chips were introduced. 0 50 100 150 200 250 2008 2009 2010 2011 2012 2013 Canada's Decrease in Retail Fraud Since Chips Debit and Credit Card Fraud Losses Expon. (Debit and Credit Card Fraud Losses) As credit and debit cards increasingly use computer chips the amount of retail fraud will decrease, but online fraud will spike. Online Fraud driving Software application sales. Source: Bloomberg, IBIS World, Yahoo Finance
- 13. 13 Discounted Cash Flow Valuation 則 6.07% growth rate based on average of 4 analyst estimates 則 Applications growth pushes top-line earnings with a 10.3% expected revenue growth rate FICOs strong growth potential yields a great ROI opportunity.
- 14. 14 Comparable Companies Valuation 則 Median used for all three multiples 則 FICO is slightly overvalued compared to competitors This is mostly based on the high hopes markets have for the firm 則 FICO is a leading innovator and this is priced into their stock and shown by their high multiples 則 Weighted 5% equally to price in the overvaluation Source: Bloomberg, IBIS World, Yahoo Finance
- 15. 15 Risks 則 Suffer from dependency on on a small number of customers for a significant amount of profit 則 A decrease in government spending poses as threat as the public sector accounts for 20% of industry profit 則 Failure to continue integrating acquired companies easily Recently acquired TONBELLER 則 A failure for high R&D investment in Decision Management Strategy Software to provide returns 則 If software has a base code that has been open sourced they may have to make the resulting software open sourced and free The company is at risk for industry-wide downturns, as well as general macroeconomic deterioration.