Fair Isaac Tanks: Here’s Why the Stock Got Crushed Today

Fair Isaac just took a nosedive—and Wall Street’s scrambling to explain the bloodbath. Here’s the breakdown.

The Algorithmic Black Box Backfires

FICO scores might rule lending, but today, Fair Isaac’s own report card looks shaky. No juicy numbers leaked yet, but whispers of missed targets or regulatory heat are swirling. When your entire business is built on trust in opaque math, even a hint of instability sends traders sprinting for the exits.

Short Sellers Smell Blood

Hedge funds love a good ‘fraud-by-spreadsheet’ narrative. Whether Fair Isaac’s dip is a blip or the start of a full-blown crisis depends on who’s shouting louder: the analysts clutching their pearls or the doomscroll brigade on FinTwit.

The Ironic Footnote

Nothing tanks a credit-score company’s valuation faster than the market itself flunking the sniff test. Maybe they should’ve modeled their own stock’s volatility—oh wait, that’d require admitting finance is just gambling with fancier jargon.

A beat, no raise, and questions about next year

In the second quarter, Fair Isaac showed 19.8% revenue growth to $536.4 million, with adjusted non-GAAP (generally accepted accounting principles) earnings per share growth of 37.1% to $8.57.

FICO's business is divided between the Core Scores segment, which makes up about 60% of the business, and the newer Software segment, which makes up about 40% of the business. Scores was up 34%, while the Software segment was up 3%.

FICO management also raised adjusted earnings per share guidance for the year to $29.15, from $28.58 prior.

So, why didn't the stock MOVE higher in response to a "beat"? It's likely a couple of things. First, while FICO raised earnings guidance, it did not raise revenue guidance, which is odd after beating expectations for the quarter.

Second, the Scores segment is benefiting from a massive price increase that happened last November. On Nov. 6, FICO raised the price of a FICO score on borrowers for mortgage originations by over 41%, from $3.50 to $4.95. Mortgages of course don't encompass all FICO score activity, but it is a significant portion of the Scores business. So in that light, there are questions as to how sustainable that 34% Scores growth rate is.

Image source: Getty Images.

FICO is expensive if its pricing power is constrained

While a FICO score is still a very small part of the overall costs of mortgages and homebuying, the company came under fire earlier this year from current Federal Housing Finance Agency (FHFA) director Bill Pulte regarding those price hikes and other matters relating to GSE agency-backed mortgages.

So, it remains to be seen if FICO can continue with high prices hikes going forward. That means that with the stock trading at 48 times this year's adjusted earnings estimates, investors may want to wait and see how the company's relationship with the current TRUMP administration and FHFA works out.