Asset Light Compounder MOAT - Credit Ratings

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Based on our discussion of Asset Light, Reinvestment and Legacy MOATs, we’re going to be looking at unique examples of them all.

Today, we cover:

  • What do they do?

  • Moody’s: An Asset Light MOAT


What do they do?

Moody’s is a credit rating agency.

They provide access to credit information after analyzing the riskiness of a business’ debt.

Moody’s + Fitch + S&P Global control ~95% of the credit ratings market globally.

The business has two revenue streams: credit ratings and analytics.

The credit ratings include access to mature and emerging markets with credit worthiness and quarterly upgrades/downgrades via their surveillance.

The analytics include expected defaults in real time. They have also started offering ESG, M&A and anti-laundering data.


Moody’s: An Asset Light MOAT

Companies incorporate Moody’s data into their systems, models and processes to make better financing decisions.

With three players controlling 95% of the market, Moody’s almost has a 100% retention rate with the subscription revenue they earn.

Due to this stickiness, they have consistently raised prices by 3-4% annually.

Companies have no bargaining power as their systems are integrated with Moody’s and the switching costs are high.

From Moody’s perspective:

Customer acquisition is the main cost

No major investments as software has high scalability

Benefits from network effects with more data and users

Collects subscription revenue upfront before service is performed

All signs of an asset-light compounder.

Acquire customers, and license existing software.

However, that’s not all.

This industry is unique to another MOAT: regulations.

The central banks have officially recognized the 3 leaders as pioneers in the space and have made it mandatory for banks to hold assets approved by Moody’s.

This is a major barrier to entry for newer players.

Find these businesses and hold them.

See you next week.