Disclaimer. Please read full disclaimer at the end of the page before reading the article. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The valuations and analyses presented here are based on publicly available

Please remember that nothing in this post is investment recommendation.

Index:

1. Introduction to Moody’s

2. Moody’s Investors Service

3. Moody’s Analytics

4. Management

5. Moody’s vs. S&P Global

6. Financial Analysis

7. Valuation and Expected Returns

Company Overview and Sector Positioning

Moody’s Corporation (MCO) is one of the world’s most important companies in the financial industry — an essential intermediary in every debt transaction across the global capital markets and a provider of essential service to the credit industry.

Dual Business Model: MCO operates two synergistic segments:

• Moody’s Investors Service (MIS), the credit rating agency generating transaction and surveillance revenues; and

• Moody’s Analytics (MA), a rapidly growing financial intelligence platform offering data, research, risk software, and analytics.

• In 2025, MIS contributed $4.1B in revenue (53% of total) and MA $3.6B (47%), a mix that has shifted materially toward MA over a decade.

Market Position: Moody’s and S&P Global Ratings constitute the duopoly that effectively controls the global credit rating market, with Fitch Ratings a distant third.

• Together, MIS and S&P rate approximately 80%+ of rated debt worldwide.

• This oligopolistic structure is protected by NRSRO (Nationally Recognized Statistical Rating Organization) licensing requirements in the U.S. and analogous CRA registration frameworks globally. Any investor around the world will rely on the rating of Moody’s and S&P.

• In the US, S&P is the largest player with 50% market share, followed by Moody’s with nearly ~33%1

Regulatory Moat: Since the Credit Rating Agency Reform Act of 2006 and Dodd-Frank Act of 2010, the SEC has recognized only ten NRSROs, with Moody’s and S&P as the only truly global franchises.

• EU CRA III regulations provide analogous protection in Europe, where MIS is registered with ESMA.

• This regulatory framework creates a near-permanent barrier to competitive entry, not just for the credit rating business but also the analytics segment.

Since becoming public in 2000, the company has increased its revenues at a CAGR of 10%

Moody’s became part of our portfolio during March 2026 as the company is well positioned to keep expanding its analytics business with the AI, while the credit rating business is a required service that only Moody’s and S&P provide.

• Company competes in oligopoly structures

• There is very limited risk from AI (from my perspective)

• There is runway for future growth

Expected returns are in the ~10% area for the coming years on a conservative basis. Moody’s incorporation to our portfolio aims to deliver asymmetric returns:

• Low downside risk after the stock fell more than 15% since reaching historical max on January

• Potential to provide steady returns and compound the capital at ~10%, which has the potential to be above the S&P 500 considering we are above the historical average valuation, which tends to lead to poor returns afterwards.

• This doesn’t seem obvious with the company trading at ~30x earnings, but a company compounding at 10-15% tends to deliver positive returns as multiples are not likely to contract.

In this post we cover the full investment thesis of Moody’s.

Part I: Introduction

1.1 Brief History

Moody’s 125-year heritage as the standard in credit analysis — dating to John Moody’s 1909 railroad bond analyses — has compounded into one of the most defensible franchises in global finance.

• 1909: John Moody publishes ‘Moody’s Analyses of Railroad Investments’ — the first publicly available, systematic analysis of financial securities, introducing the letter-rating scale still in use today.

• The core products were the famous Moody's Manuals — thick annual volumes that compiled financial data, corporate histories, capital structures, and bond ratings on thousands of American companies.

• These manuals evolved becoming a must have for investors. These were the ones that Warren Buffet studied in his early days.

In 1962, the company was acquired by Dun & Bradstreet.

• D&B was itself a business information company (best known for its commercial credit reports on businesses), so Moody's fit naturally within its portfolio of financial data products.

• D&B was essentially buying a well-known brand in financial reference publishing, not what we would today recognize as a dominant tollbooth on the global capital markets.

During these decades, the business will face disruption from new technologies and the company adapted to the new reality

• In the original model, Moody's made money the same way as newspaper or encyclopedia did — by selling publications. Investors, banks, and insurance companies subscribed to the manuals. The business was decent but fundamentally limited: distribution was physical, and revenue was capped by the number of institutional subscribers willing to pay.

• Once Xerox machines became widespread in the 1960s, institutional investors could simply copy the relevant pages and share them internally, destroying Moody's ability to monetize each reader separately.

• The classic free-rider problem — once a rating is published, everyone can use it without paying.

New regulations during the 1960s and 1070s shifted the business focus to the credit ratings

• Throughout the 1960s and early 1970s, U.S. securities regulations increasingly referenced credit ratings as a regulatory input — determining what assets banks could hold, what counted as investment-grade for pension funds, and so on.

• Initially, this regulation was focused on bank-eligible securities, not every bond issuance.

The real inflection point came in the early 1970s, when the SEC introduced the concept of NRSRO (Nationally Recognized Statistical Rating Organization).

• Broker-dealers could use NRSRO ratings to determine the capital they needed to hold against different securities.

• Moody's and S&P were immediately recognized; Fitch shortly after.

Once ratings became a regulatory requirement rather than just a useful reference, the dynamic flipped completely.

• Before 1975, an issuer might want a rating because investors found it useful.

• After 1975, an issuer needed a rating because institutional investors were legally constrained in what unrated securities they could buy, and because regulators used ratings to determine capital treatment.

• This created a situation where issuers needed ratings to access capital markets, not just investors who wanted to read about them.

• From 1975, any buyer of debt — banks, insurance companies, pension funds, money market funds — required the issuance of debt to have NRSRO rating referenced.

The structured finance boom of the 1980s extended this logic further.

• Mortgage-backed securities, asset-backed securities, and collateralized debt obligations were new instruments with no historical track record — the only way institutional investors could get comfortable buying them was with an NRSRO rating.

• Moody's and S&P effectively became co-creators of these markets, because without their ratings the instruments couldn't be distributed.

• This gave the agencies extraordinary pricing power on structured products — and is also, of course, what led to the catastrophic conflicts of interest that blew up in 2008.

Moody’s Corporation spun off from Dun & Bradstreet on September 30, 2000, listing on the NYSE as MCO.

• The main driver was to unlock value and provide independence to a company that was growing fast.

• Warren Buffett’s Berkshire Hathaway, which became a ~13% shareholder post-spin, recognized early the franchise’s extraordinary economics.

• Since then, Berkshire has remained a shareholder in the company.

• During 2025, the company celebrated its 125 anniversary

The financial crisis (2007) severely damaged credibility following structured finance ratings failures.

• See the movie A Big Short to quickly understand the problematic.

• Ratings of mortgage-backed securities failed to capture the risk of the underlying mortgages, and were rated AAA.

• Post crisis, the investigations made by the Senate concluded that the agencies had issues “inaccurate” AAA ratings under pressure from issuers.

• Once of the main problems was the conflict of interest, as the larger the issuer, the more pressures the agency faced to provide better ratings.

The political pressure to reform or break up the rating agencies was at its peak in 2009–2010. What actually emerged was significantly less radical than what reformers wanted, for reasons that reveal how structurally entrenched the agencies had become.

• Dodd-Frank Act (2010) — the main legislative response: made it significantly easier for investors to sue rating agencies for securities law violations, lowering the pleading standards that had previously protected agencies. Prior to this regulation, agencies had successfully defended that ratings were protected opinion.

• Agencies were required to implement policies separating their analytical functions from their commercial/sales functions

• Disclosure and transparency. NRSROs were required to publicly disclose their methodologies, their historical default and transition statistics, and their rating performance data in machine-readable formats.

• EU CRA III introduced mandatory rotation requirements for structured finance ratings — issuers of certain resecuritization products were required to rotate their rating agency every four years.

• Basel III tried to reduce banks’ dependence on Moody’s and S&P by pushing sophisticated institutions to build their own internal credit models. It largely succeeded with the big banks. But for the majority of banks worldwide — the smaller, less sophisticated ones — external ratings remained embedded in the rules for calculating how much capital to hold against different assets. So the net result was a partial decoupling at the top of the market, with the duopoly’s grip on the broader banking system left essentially intact.

After the crisis, Moody’s expanded its analytics business. The Bureau van Dijk (BVD) 2017 acquisition by $3.5bn marked MCO’s most transformative M&A event, dramatically expanding Moody’s Analytics capabilities.

• BVD’s flagship product, Orbis, contained financial statements, ownership structures, shareholder data, and corporate hierarchies for over 260 million companies across 170+ countries — the vast majority of which are private businesses that don't file public disclosures and are therefore invisible to most financial data providers.

• This cemented MA’s position as a credible competitor to Bloomberg/S&P Market Intelligence in the financial data market.

• Prior to the acquisition, Moody’s Analytics was strong in credit research, risk models and economic forecasting, but had limited reach into private companies.

• It was the largest acquisition in MCO's history and briefly alarmed investors focused on the leverage it required. But in retrospect it was a foundational purchase that transformed MA from a credit research business with some software into a financial intelligence platform with proprietary data assets that competitors could not easily replicate.

MCO has acquired multiple companies to expand its product offering and creating a comprehensive platform of data analytics

• Earlier that year, MCO also acquired the structured finance data and analytics business of SCDM, a Frankfurt-based provider of analytical tools.

• Building on BvD's ownership data, MCO acquired Regulatory DataCorp (RDC) in 2020 — a global leader in risk and compliance intelligence used for KYC screening.

• In 2021 MCO acquired Cortera (commercial credit data on U.S. businesses) and Catylist (commercial real estate data). In late 2024 it acquired Numerated Growth Technologies, a lending technology platform that streamlines commercial loan origination for banks — directly feeding into MA's banking Decision Solutions workflow.

It also expanded its credit rating business in other geographies

• In 2023 MCO acquired SCRiesgo, a credit rating agency in Central America.

• In July 2024 it acquired GCR (Global Credit Rating Company), the leading domestic rating agency in Africa, covering 19 African countries

Under CEO Robert Fauber (appointed January 2021), MCO has executed a pivot toward a platform-based analytics, growing MA ARR from ~$1.8B to $3.5B, while MIS has expanded into private credit, ESG, and climate risk as new, high-growth rating markets.

1.2 The Group’s Main Figures Today

Moody’s exceptional financial profile — combining high recurring revenue, world-class margins, and disciplined capital allocation — justifies its premium multiple and positions it as a compounding machine for long-term investors.

• Revenue grew from $5.9bn in 2023 to $7.7bn in 2025, with management guiding for roughly $8.4bn in 2026 (company growing its top line at high-single digits).

What makes the top-line impressive is what falls through to the bottom line.

• Operating margins kept expanding: from 36.1% in 2023 to 43.4% in 2025, with guidance pointing to 45–46% in 2026.

• Earnings per share on an adjusted basis went from $9.90 in 2023 to $14.94 in 2025, with 2026 guidance of $16.40–$17.00. That’s a near-doubling of EPS in three years.

• Free cash flow has tracked similarly — $1.9bn in 2023 to $2.6bn in 2025, with $2.8–3.0bn guided for FY2026.

At roughly $80B market cap (April 2026), the stock trades at about 30x trailing earnings and ~20x EV/EBITDA — an apparently high premium, but one that has historically proven justified by the compounding.

• Return on invested capital stands at ~30% and has remained above this level over the last 25 years

• Total debt has actually declined — from $7.4bn at end of 2024 to $7.0bn at end of 2025, with net debt falling from $5.0bn to $4.6bn.

• Moody’s has grown its dividend at a 17% compound annual rate since its 2001 spin-off from Dun & Bradstreet — through the dot-com bust, the financial crisis, COVID, and the 2022 rate shock.

1.3 Segment Overview

MCO’s two segments are deeply complementary: MIS generates the credit opinions and proprietary data that fuel MA’s products, while MA’s deeper client relationships and data infrastructure amplify MIS’s value proposition — creating a flywheel that is difficult to replicate.

• MIS ratings generate proprietary credit research and assessments used as foundational inputs for MA’s products. MA distributes this content (under intersegment royalty arrangements) alongside third-party data.

• Clients who subscribe to both MIS-sourced research and MA’s risk management platforms have dramatically higher retention and expanded relationships.

• Revenue Mix Shift: The MA/MIS revenue balance has shifted from ~33%/67% in 2015 to ~47%/53% in 2025 as MA has grown faster. This is strategically significant: MA’s highly recurring subscription revenues (96% recurring in 2025) dampen MIS cyclicality while MIS benefits from secular issuance tailwinds. Management is targeting an eventual balance that delivers both high growth and high quality of earnings.

  

• Shared Infrastructure: Both segments leverage common technology platforms, data estates (~3.5 trillion data points, 3B+ ownership links as of FY2025), brand equity, and distribution capabilities.

Part II: Moody’s Investors Service (MIS) — The Ratings Engine

2.1 Introduction: the regulatory moat

MIS is one of the Big Three Credit Rating Agencies. These 3 agencies collectively control 90-95% of the ratings globally.

• S&P is the largest CRA, followed by Moody’s and Fitch.

• These credit agencies dominate the global ratings offering.

Ratings are required in many cases, as the capital and eligibility rules that govern regulated financial institutions make ratings a practical necessity for any issuer or instrument seeking broad institutional distribution

• Issuers of debt seeking financing from public markets are required to have a rating associated with the issue of debt.

• Sovereigns, corporates, financial institutions and asset-backed securities are required to have a rating. Otherwise, majority of the investors (financial institutions, insurance, pension funds, etc.) will face significant restrictions to acquire those bonds.

• Unrated bonds are permitted under current regulations, but discourage institutional investors holding large amounts of those bonds.

Therefore, credit rating agencies benefit from a regulatory moat, with limited threat from AI as the stamp from S&P or Moody’s will be more valuable than the best AI credit model.

• Ratings act as a universal benchmark, with issuer paying fees to the Big 3 CRAs to secure better terms, reinforced by investor and regulatory reliance.

• There is a huge network effect. Ratings from these 3 CRAs are universal and widely accepted by investors. A new agency might be created with better models, but will be excluded from the network.

• The current network of 3 big players cannot be replaced with an algorithm, no matter how sophisticated, because the value of the rating is not just the information content — it is the regulatory standing attached to the issuer's name.

• AI will eventually improve the efficiency of the CRAs, but in the medium-term is unlikely to disrupt the market.

Credit rating agencies benefit from huge barriers to entry and their business is protected in the form of a regulatory moat, that prevents future competitors to enter the business. In words of the SEC report on NRSROs in 20242:

• “The long history of investor acceptance and global nature of the largest [credit rating agencies] can serve as impediments to new entrants

• Investor acceptance has been raised as a potential barrier to entry by certain [credit rating agencies]in the context of the investment management contracts of institutional fund managers and the investment guidelines of fixed income mutual fund managers, pension plan sponsors, and endowment fund managers.

• It is common for these types of contracts and guidelines to require the use of ratings of specified [credit rating agencies].

• The inclusion requirements of some fixed income indices may pose a similar barrier to entry.”

Credit ratings from agencies like Moody's and S&P indicate an issuer's creditworthiness and the likelihood of timely debt repayment.

• They assess default risk based on financial health, industry factors, and economic conditions

• Agencies evaluate issuer balance sheets, cash flows, debt levels, management quality, and macroeconomic trends

• Ratings influence bond pricing, yields, and liquidity, with historical data showing AAA bonds having near-zero defaults over decades compared to B- that show high default rates.

The credit rating agencies report similar classifications that are known all around the world by fixed income investors.

Investors classify bonds into two buckets, depending on the financial health of the issuer

• Investment grade, which are bonds rated Baa3/BBB- or better

• High-yield (also referred to as “non-investment-grade” or “junk” bonds) pertains to bonds rated Ba1/BB+ and lower.

• Ratings allow investors to price any bond issuance (i.e., risk/return) and to manage the exposure to credit risk.

2.2 Competitors and Total Addressable Market

In the US, S&P leads, followed by Moody’s and Fitch.3

• In the US, S&P is the leader, followed by Moody’s. S&P ratings are present in 50% of the total outstanding ratings, while Moody’s in 32%.

• S&P dominates the government securities, with a 55% market share and has a 30-40% in FIG, insurance and corporates.

• Moody’s has on average a 25-30% market share in the different type of issues

In Europe, the situation is similar, with S&P leading the market, followed by Moody’s.4

• S&P has a market share of 50%, while Moody’s a 30%, followed by Fitch with 12%.

• Moody’s dominates the EU-only financial institutions issued ratings, covering nearly two thirds of the issues. It also leads the structured finance segment.

The total addressable market keeps expanding every year with the monetary expansion of governments and the actual economies that are fueled by debt

1. Governments keep printing money and the debt issued keeps increasing every year. The economic growth is dependent on debt markets, as it’s a way of creating money.

2. Corporates will keep issuing debt to finance new developments (e.g., the large hyperscalers such as Meta are issuing billions of debt to finance the developments in AI). Every industrial revolution of any industry expansion requires debt and equity to finance (mostly debt).

3. Private credit is becoming increasingly popular, although currently is being considered as a high risk factor.

In figures, Moody’s TAM expands at a CAGR of 6-7% per year and currently stands at $250tn

• Total debt in 2025 reached ~$250tn according to the IMF’s 2025 debt report5

• Global debt has increased from ~$80tn in the 2000s to current above $250tn

• Note that this is the total debt issued by governments, non-financial institutions and households, which is representative of the TAM, as indirectly, this debt is also financed by financial institutions.

All in all, since Moody’s IPO, the TAM has expanded 3x, while revenue from MIS by nearly 6x, suggesting a potential mix in penetration and pricing power

• During 2025, Moody’s rated $6.6tn of debt issued, compared to total debt issued during 2025 of ~$29tn6

• Its market share of ~1/3 in the rating markets is below industry leader S&P, and could have potential to further increase as its reputation stands at similar levels.

• However, given they apply a different metrics than S&P and Fitch, I would remain cautious of potential market share expansions.

The majority of the revenue comes from Corporate Finance, the largest segment 50% of the revenue, aligned with the total debt outstanding, where private debt is dominant

• Corporate Finance (CFG): $2.1bn revenue in 2025 (52% of total). The largest segment, covering investment-grade, high-yield, and leveraged loan issuance by corporates. Highly sensitive to M&A activity, leveraged buyout volumes, and refinancing cycles. Investment grade represents the most durable portion; leveraged finance is the swing factor.

• Financial Institutions (FIG): $759m in 2025 (18% of total). Covers banking, insurance, and managed investment entities. Benefiting from bank deleveraging and insurance capital market activity.

• Structured Finance (SFG): $558m in 2025 (14% of total). ABS, RMBS, CMBS, and CLOs. Recovery from 2022 lows driven by CLO issuance, private credit securitization, and the AI data center financing wave creating new structured product demand.

• Public, Project & Infrastructure (PPIF): $635m in 2025 (15% of total). Ratings for sovereigns, municipal issuers, public utilities, and infrastructure projects. More resilient to economic cycles than corporate credit; benefiting from global infrastructure investment and the energy transition.

• Others: $35m in 2025. Non-ratings revenue from ICRA (India), KIS (Korea), and KIS Pricing. These provide geographic reach and strategic footholds in emerging markets.

2.3 Business Model

Revenue Model is based on a fee over each debt issuance worldwide plus a monitoring fee over the life of the bond. This creates a strong level of recurrent revenue.

Moody’s charges two different fees, both representing a minimal fraction of the proceeds obtained from the issuance of debt

1. Issuance fees: Moody’s charges the issuer a one-time fee at the time of the bond issuance, typically calculated as a small number of basis points on the total principal amount of the debt being rated, subject to a minimum floor and a maximum cap, with the exact rate varying by asset class and deal complexity.

2. Monitoring fees: Once the rating is assigned, Moody’s charges an annual surveillance fee — a smaller, fixed recurring amount — to maintain and update the rating on the outstanding debt for as long as it remains active. This is done either on a specific security, or the issuer overall creditworthiness.

It essentially works like a sort of asset management company. Moody’s receives fees from the issuance of debt, and then keeps receiving fees during the life of the debt. Then, debt matures and the process restarts if refinanced.

• The best thing? It’s mandatory by law, and only Moody’s and S&P (and Fitch with lower share) are the providers of the services.

In terms of economics, a meaningful fraction of the revenue is stable

• Around 1/3 of the fees are monitoring fees. These fees are increasing at ~5% per year, in line with the global debt increase.

• The other 2/3 represent issue fees, which are paid by issuers at the time of a bond/security issuance. This transactional revenue is more volatile and depends on annual debt issued.

The most interesting part is that recurrent revenue represents on average ~95% of the opex of Moody’s.

• The company can easily survive a very challenging macroeconomic environment and navigate crisis without hurting its balance sheet

• Over the last 9 years (last data available), rated debt increased annually by 1.3% from $72tn to $80tn while recurrent revenue grew at a CAGR of +4.3% over the same period, suggesting there’s been pricing power over the decade

• Recurring revenue represents a very small fraction of the outstanding rated debt of ~0.0015%

• Moody’s rates debt to over 33,000 organizations, implying monitoring fees of ~$40k per client, a ver reasonable amount for majority of debt issuers.

While profits are correlated with the economic cycle, the company is so solid that in the worst periods, the still earn profits

• Transaction revenue is pure margin and flows directly to cash flow

• In 2008-09, when the financial industry was shacking, Moody’s kept earning income (50% less, but always positive), and always recovers in the next years

Transactional revenue is pure margin for the company

• Transaction revenue is pure margin and flows directly to cash flow

• This upside is increasing at a CAGR of ~7% in the last decade

The applied rate varies considering the characteristics of each issuance:

• Asset class — structured finance products like CLOs historically commanded higher fees than plain vanilla investment-grade corporate bonds, partly because of the complexity and partly because of the leverage Moody’s had in markets where its rating was effectively required

• Deal complexity — more tranches, more jurisdictions, more analytical work means higher fees

• Relationship — large frequent issuers like major banks or frequent corporate borrowers negotiate annual fee arrangements that provide some fee certainty regardless of issuance volume in a given year, essentially a retainer structure

• Geography — international deals often have different fee schedules than U.S. domestic transactions

The important aspect to highlight from the fee structure:

1. Fees tend to be relatively small compared to the size of the issuance and do not imply a significant burden to issuers.

2. There are commercial relationships — the larger and ore active the issuer, the less tends to be the fee charged.

3. A meaningful proportion of the fees are recurring. Either because they are monitoring fees or recurring debt issues.

All of this implies that forward revenue estimates should converge to a 5-6% of annual growth, assuming no increase in fees and market share

• 1/3 of actual revenue to grow steadily at 5% (in line with past growth and how global debt is evolving). This revenue is more stable and less correlated to debt issuance/refinancing.

• The other 2/3s are more volatile, as its transactional revenue dependent on the debt issued each year, but should converge in large periods of time to the global debt evolution, which historically has been around 6-7% annual increase.

• All-in-all, even a 5% compounded growth will be conservative

2.4 Competitive Advantages and Moat

Proprietary Data Advantage is one of the main competitive advantages of the company, which keeps attracting new issuers every year (and loosing bankrupt clients too)

• MIS has rated $80+ trillion in outstanding debt as of early 2026, building a 125-year database of rating transitions, defaults, and recoveries across economic cycles that is impossible to replicate.

• This historical depth is the bedrock of quantitative default probability models and structured finance analytics. This reputation is what makes the Big 3 the largest and most reputable credit rating agencies.

• First Time Mandates (FTMs) — new issuers seeking their first Moody’s rating — totaled ~765 in FY2025 (guidance: 750–850 for FY2026), representing a steady flow of new clients into the MIS ecosystem, expanding the rated universe particularly in emerging markets, private credit, and infrastructure.

The moat: Regulatory requirements, no competition

The single most important source of MIS's competitive advantage is not brand, not data, not analytical quality — it is regulatory embedding. Moody's is one of only three Nationally Recognized Statistical Rating Organizations (NRSROs) designated by the SEC in the US, and one of a small number of External Credit Assessment Institutions (ECAIs) recognized by regulators globally.

The NRSRO designation creates a government-sanctioned oligopoly. There are currently 10 NRSROs, but for practical purposes the market operates as a duopoly between Moody's and S&P, with Fitch a distant third across most asset classes.

Other considerations: Switching Costs and Competitive Position

• Once an issuer establishes a rating relationship with Moody’s, switching creates significant friction: covenant documentation, investor familiarity with the rating agency’s methodology, regulatory requirements in certain jurisdictions, and the operational complexity of maintaining dual-agency relationships.

• The credit rating on a specific security is effectively permanent — you cannot switch the existing rating, only add a second one.
  I’ve worked in the past analyzing credit ratings in a corporate and you need to understand the methodology, present your strategic plan to the CR every year, etc. There is a relationship with management. If a company is thinking in a large acquisition, the company might ask the CRA the impact on the rating. All of this solidifies the relationship between the company and the CRA.

• The ‘minimum two ratings’ convention for investment-grade bond issuance in the U.S. (Moody’s and S&P as the default pair) ensures both agencies capture virtually all IG primary market activity. This structural demand generates what Warren Buffett has described as the most important characteristic of a great business: pricing power without the need to earn it anew each year.

Part III: Moody’s Analytics (MA) — The Intelligence Platform

3.1 Introduction

Moody's Analytics (MA) is the subscription-based data and software business of Moody's Corporation — it sells financial data, risk models, research, and software tools to banks, insurers, and corporations to help them manage credit and financial risk.

MA serves more than 11,000 institutional clients with a customer base concentrated in the US

• Geographic Mix: MA generates ~57–58% of revenue from the U.S. and ~42–43% internationally (primarily EMEA at ~25%, Asia-Pacific at ~9%, Americas ex-U.S. at ~8%). MIS is more U.S.-centric at ~63% domestic in FY2025. International expansion, particularly in EMEA and Asia through Moody’s Local (22% revenue growth in FY2023), remains a significant organic growth lever.

• Customer Base: MA serves 11,000+ institutional customers across 155+ countries — virtually every major financial institution, corporation, and government entity globally is a customer. 97% of Fortune 100 and 87% of Forbes 1,000 companies are Moody’s customers as of FY2023.

Revenue Model and Quality of Earnings

• Subscription-Dominant: 96% of MA revenue is recurring (subscription and software maintenance), compared to ~85% in 2018. This near-complete recurring revenue profile makes MA a high-quality, predictable earnings stream that provides a natural hedge against MIS cyclicality.

• While it has lower margins than the ratings business, it still generates very attractive operating margins of 30%.

• ARR is the Leading Indicator: MA reports Annualized Recurring Revenue (ARR) on an organic constant currency basis as its core operational KPI. ARR was $3.45bn as of 2025, up 8% YoY organically. ARR helps understanding the annualized revenue and excluding timing timing impacts.

• Customer Retention: 94% gross retention of the existing ARR base, with upgrades, price increases, and new sales contributing to 110% net revenue retention (i.e., the same cohort of customers generates 10% more ARR the following year on average). This is characteristic of best-in-class SaaS/data businesses and reflects deeply embedded workflows.

The business is structured in three lines of business:

1. Decision Solutions: Embedded SaaS software powering lending, insurance underwriting, and compliance workflows.

2. Research & Insights: Analytical content and quantitative models that help institutions understand credit risk.

3. Data & Information: Structured data on companies, securities, and ownership chains sold as feeds and applications.

Decision Solutions is the core segment of MA representing nearly half of total revenue. This segment provides analytics to financial institutions and is divided in three subsegments:

• Banking (31% of segment revenue): provides lending risk management tools, that are required by law (e.g., risk models that are validated by regulators).

• Insurance (41% of segment revenue): provides multiple tools to help insurance companies managing their risks. Some examples include:

  • CAPE analytics: AI and satellite imagery to automatically assess individual property characteristics — roof condition, building materials, vegetation proximity — eliminating the need for physical inspections

  • Catastrophe modeling tools (climate risk analytics), and others sus as Predicat (emerging casualty and liability risk modelling for long-tail risks)

• KYC: helps the institutions to assess the identity, ownership structure, and risk profile of the entities they do business with before and during a business relationship. They use proprietary data over nearly 300 million companies.

  • While this segment seems to be at risk with AI, this is not related to the KYC process itself, but rather gathering the key information for KYC procedures (see illustrative slide from Moody’s below of how their platform Orbys, which includes data for nearly 300 million private companies, helps institutions assessing critical considerations such as the ownership structure).

Decision Solutions has become a key segment because it leverages on all Moody’s systems and platforms. This provides a clear protection against the threat of AI, as replicating this platform requires basically to create a new Moody’s corporation.

Research & Insights (28% of revenue) provides credit research, quantitative credit models, economic forecasts, and structured finance analytics.

• Moody’s provides macroeconomic forecasting through its Economic View platform (https://www.economy.com/economicview/)

• Credit rating research platform

• It also provided economic data production (i.e., commentaries on what is happening in the economy now)

• Country and industry research

Data & Information (25% of revenue), collects, standardizes, and distributes global financial, credit, and entity-level data.

• Moody’s has decades of information regarding credit ratings, probabilities of default, etc. Only S&P can compete against them.

• Additionally, they provide financial data on private companies. The Orbys platform has data of hundreds of million of companies.

• Switching costs are high when internal models are built on Moody’s datasets. Changing to another supplier requires adapting all models to the new provider.

• All data on credit ratings is proprietary, and the data from private firms is very hard to source and probably very expensive.

• However, some of the other data is not proprietary and also faces competition from Bloomberg and LSEG platforms.

• As of today, Moody’s can protect this segment from the AI threat as an important component of the data is proprietary.

• More importantly, the recent partnership with Claude has significant strategic implications. Now, Claude will be integrated in this database and clients will be able to ask Claude question related to this vast database, increasing the value to the client, and also defending against competition.

• The exposure to this segment is the same as for Research & Insights (i.e., there is a low exposure to this segment in case there will be a material negative impact from AI).

Bureau van Dijk was an acquisition that enhanced the business and Moody’s has been able to leverage this data platform.

• While the raw data might not be proprietary, the data provided to the clients is proprietary.

• AI should not negatively affect the Orbis platform as building this in-house makes no sense as Orbis relies on data over ~300 million companies. It will be very expensive to develop a similar tool internally by its clients.

This is the main summary of the main segments and subsegments from Moody’s Analytics

3.2 AI Considerations on Decision Solutions (50% MA revenue)

In the Decision Solutions segments, company is gradually migrating customers that previously used older on-premise or perpetual license versions of Moody's software are migrating to cloud-hosted SaaS versions.

This is important for two reasons:

• Cloud subscriptions generate higher and more predictable recurring revenue than one-time licenses

• Cloud customers tend to expand usage over time as they add modules.

What AI will needs to put Moody’s Decision Solutions out of business:

• In the banking segment, to comply with a massive regulation that requires banks to run sophisticated and validated quantitative models. And, requires that current clients decide to move to an AI platform, or develop their own models. Switching costs are expensive, time consuming and might lead to unexpected outcomes.

  • All these regulations share a common origin: the 2008 financial crisis exposed that banks were catastrophically undercapitalised and blind to their own risk.

  • The response was a global wave of reforms — primarily driven by the Basel Committee (Basel III/IV), the FASB/IASB (CECL/IFRS 9), and national regulators (Fed, ECB, BoE) — with three core goals:

    • Force banks to hold more capital against their risks,

    • Require forward-looking rather than backward-looking loss provisioning, and

    • Make risk transparent and auditable to regulators at all times.

• In the insurance segment, it requires the same as in the banking segment, and also that its clients decide to create their own platforms. This can disrupt their business and put them in trouble with the regulators.

• In KYC, note that Moody’s provides data that helps organizations identifying its clients, but does not participate in the admin component, which will be massively impacted by AI. KYC is an important part of the daily operations, as it affects not only reputation but also a bad KYC process may lead to sanctions by regulators.

Every one of these regulations requires financial institutions to run sophisticated, validated, and auditable quantitative models — exactly what Decision Solutions sells.

• Crucially, compliance is not optional, has hard deadlines, and requires a trusted third-party methodology that regulators will accept, which a bank cannot easily build internally or replicate with generic technology.

• This creates a perpetual, recurring, and largely non-discretionary revenue stream for Moody’s that grows every time a new regulation is introduced anywhere in the world — making regulatory complexity one of the most durable structural tailwinds in the entire business model.

• Switching costs are high as these models are embedded into the decision-making process and is a painful process with the regulators to get new approvals

3.3 AI considerations on Research and Insights

The core threat: content commoditization. R&I sells written analytical output — credit research, sector commentary, economic forecasts, special comments. This is precisely what LLMs are becoming good at generating.

• A credit analyst at a bank can increasingly ask ChatGPT or a Bloomberg AI tool to summarize a company’s credit profile, generate a sector outlook, or explain what a ratings action means — tasks that previously required a CreditView subscription.

• The threat is not that AI replaces Moody’s ratings — those carry regulatory standing that LLMs cannot replicate. The threat is that AI replaces the consumption layer around ratings. If a user can get a good-enough synthesis without logging into CreditView, the subscription loses value.

Specific vulnerable products are those that are commentaries on the market rather than specific proprietary information from Moody’s. Among them:

• Written credit research and sector commentary — narratives that LLMs can increasingly approximate

• Economic outlook reports — macro narratives are highly replicable by AI trained on public data

• Special comments on rating actions — explanatory content that AI can summarise or paraphrase from public filings

However, part of the information they provide is proprietary and less vulnerable.

• EDF/CreditEdge default probability scores — proprietary model outputs that require Moody’s 125-year default dataset as training input, which LLMs do not have access to

• Economic scenario models — the numbers and model outputs are defensible; only the narrative wrapping them is exposed

• Structured finance analytics — highly technical, deal-specific, not easily replicable

Moody’s management is embedding AI into R&I rather than being displaced by it — the Research Assistant (GenAI search over their corpus) and next-gen CreditView are attempts to make Moody's the AI interface for credit research rather than be disintermediated by a generic one.

• Early data is encouraging — users access 60% more content and complete tasks 30% faster. But the pricing power question remains open.

• Even if ChatGPT becomes a good product, is still need reliable sources. We are not there yet, and Moody’s can simply develop with OpenAI/Anthropic LLM models for its platform - a similar thing as Quarter App.

3.4 AI Considerations on Data & Information

The threat is more nuanced — it depends on the data layer. D&I has two very different components with different AI exposure profiles.

• High exposure — commodity data layers: Raw financial data, standardised company information, basic entity profiles — these are increasingly replicable. AI models can scrape, structure, and synthesise public regulatory filings, company registries, and financial statements at scale. A startup with good web scraping and an LLM pipeline can approximate the lower-value layers of BvD Orbis for a fraction of the cost. This creates pricing pressure on the commodity end of D&I.

• Low exposure — proprietary structured data: BvD’s ownership chain data — 3 billion+ ownership links connecting 500M+ entities across 170+ countries — is genuinely hard to replicate. It was built over decades through relationships with local registries, manual data collection in jurisdictions with poor digital infrastructure, and continuous maintenance. AI cannot generate accurate beneficial ownership chains for a Cayman Islands holding company with subsidiaries across 12 jurisdictions — it requires the underlying registry data, which Moody’s has spent decades acquiring.

The KYC angle: AI actually helps D&I here rather than hurting it. Moody’s uses AI to process adverse media, screen entities, and reduce false positives — making the D&I-powered KYC product more valuable, not less. The threat is from competitors using the same AI techniques to build cheaper alternatives, not from AI making the data itself less necessary.

3.5 Conclusions on AI: AI as Structural Tailwind, Not Threat

A minority part of the product sold by Moody’s presents a risk of disruption by AI.

• A big majority of the data is proprietary (especially the ratings and information on private companies), while other tools are required by law and switching costs are high.

• These tools are embedded into the operations of financial institutions. Rather than developing by themselves and assume operational risks (plus all the expenses associated), the likely outcome seems that these companies will still rely on Moody’s products, while Moody’s will develop the AI for them.

Recent commercial data supports that clients value the aggregation of AI into Moody’s platform.

• Customers who have purchased or upgraded into a standalone GenAI product show 2x ARR growth rates versus the rest of the MA customer base, and 97% retention — the highest in MA’s history.

  

• Partnership with Anthropic: Moody’s and Anthropic partnered to embed Moody’s risk intelligence and agentic workflows (credit analysis, compliance, KYC) natively into Claude via MCP, turning Moody’s proprietary data on 600M+ entities into a real-time layer that financial professionals can access conversationally without leaving the Claude environment. This will be extremely valuable for clients.

3.6 Financial Data and Analytics Competition

MA competes in one of the most attractive markets in financial services — financial data and analytics — which benefits from secular volume growth in data consumption, increasing regulatory complexity, and the AI-driven demand for trusted, validated intelligence.

a) Research & Insights ($995M ARR) — Competitors

There is competition in the market from tier-1 players like Bloomberg and S&P.

• Bloomberg Terminal generates roughly $7bn in annual revenue, but the relevant comparison is narrower — Bloomberg’s fixed income research and credit analytics offering competes directly with CreditView, which is a fraction of R&I’s $995m. Bloomberg targets front-office trading and investment banking teams at $25,000+ per seat. Moody’s CreditView targets credit risk and research teams at lower price points — a different buyer, a different workflow, significant overlap only in the institutional fixed income research layer. The two platforms might be complimentary.

• S&P Capital IQ Pro is the most direct comparable. S&P Market Intelligence segment generated $3.7bn in 2025, of which Capital IQ Pro is a meaningful portion. Against R&I’s $995m, S&P has greater breadth of financial data coverage; Moody’s has deeper credit methodology and structured finance analytics.

• Fitch Solutions is smaller — estimated $300-400m in revenue — competing narrowly in credit research and country risk against the same R&I $995m base.

• Economist Intelligence Unit, Oxford Economics, and other platforms for the economic insights.

b) Data & Information ($912m ARR) — Competitors

• Dun & Bradstreet (its prior owner) generated approximately $2.3bn in 2025 revenue, competing primarily against BvD Orbis within D&I’s $912M. D&B has stronger US commercial credit coverage; BvD has superior international ownership chain data. The two are the dominant head-to-head choices for enterprise KYC and credit use cases.

• Creditsafe is a lower-cost European alternative to BvD, estimated at $200-300m revenue, competing at the SME end of D&I’s addressable market. Not a big threat.

c) Decision Solutions ($1,692m ARR) — Competitors by Sub-Segment

• Banking: nCino generated approximately $670m in FY2025 revenue competing directly against Moody’s Banking workflow within DS. nCino focuses on loan origination infrastructure; Moody’s differentiates by embedding proprietary credit models and economic scenarios inside the lending decision.

• Insurance: Verisk’s Insurance segment generated approximately $3.5bn in FY2025, of which the catastrophe modelling business (competing directly against RMS within DS Insurance) is a meaningful portion. RMS and Verisk/AIR are the two dominant global modelling platforms — the most direct head-to-head in Moody’s entire competitive landscape.

• KYC: LSEG’s Risk Intelligence division (which includes World-Check) is estimated at $500-700m in revenue, competing directly against the KYC compliance workflow within DS. World-Check leads on PEP and sanctions screening breadth; Moody’s leads on beneficial ownership depth via BvD.

Their main competitors, nCino and Verisk are struggling in the stock market during the last 12 months, signaling issues.

• The case of nCino is the gap between valuation and expectations. Current market cap is $2bn, while FCF ~$16m ($90m cash flow operations and $74m of SBC). The company is lowering the growth expectations, and valuation has been adjusted accordingly. It’s a different case than Moody’s

• Verisk’s market cap is down ~$15bn (roughly 47% from peak) due to three compounding pressures:

  • P&C insurance cycle normalization, with ~20-25% of revenue contractually tied to net written premium growth, which decelerated from 6.5% to 3.8% annualized in early 2026

  • AI disruption fears, as the market worries generative AI will commoditize traditional data-as-a-service business models

  • Broader sector rotation out of information-services names, which has compressed multiples across the entire complex (Moody’s, Experian, FactSet, MSCI, S&P Global).

  • Moody’s Insurance is materially less exposed.

    • Moody’s Insurance segment is largely insulated from the first two drivers and only fully exposed to the third. Unlike Verisk, it sells multi-year subscription software (AXIS, RMS, RiskIntegrity) priced on modules, usage, and seat counts rather than premium volume, so a softening P&C cycle has no direct revenue link

    • Its AI-disruption moat is also stronger: regulator-approved models for Solvency II, IFRS 17, LDTI, and NAIC frameworks cannot be replaced by black-box GenAI, and switching vendors requires multi-year regulatory re-approval, making the use case structurally more entrenched than P&C underwriting data feeds.

    • The only headwind it cannot escape is sector-wide multiple compression at the MCO parent level, since Insurance is a segment rather than a separately traded ticker — meaning the fundamentals remain durable even as the stock absorbs the same de-rating as its peers.

3.7 Market Characteristics and Outlook

• Total Addressable Market: The global financial data market is estimated at $40–50bn+ annually and growing at ~8–10% per annum, driven by increasing data consumption, AI-driven analytics demand, regulatory compliance requirements, and the digitization of financial workflows.

• AI as an Accelerant: Rather than displacing financial data providers, AI models require high-quality, structured, proprietary data — precisely what MCO and SPGI own. Financial services AI applications need validated credit data, ownership hierarchies, and macroeconomic models that only incumbents with decades of data collection can provide. The AI infrastructure buildout (hyperscaler capital expenditure projected at $300bn+ in 2025) is itself a direct tailwind for MIS structured finance ratings.

• Private Markets Expansion: The shift of credit from public bond markets to private credit (~$2.5tn AUM) represents a significant but underpenetrated market for both MIS ratings and MA analytics. As private credit grows, GPs and LPs seek MIS ratings for distribution and MA tools for portfolio monitoring — a compounding TAM expansion.

• Refinancing Wall: MCO’s analysis identifies ~$5.2tn in Moody’s-rated U.S. and EMEA corporate debt maturing in the next four years (through 2029), up 6% vs. prior year. This virtually guarantees a sustained floor of issuance activity as borrowers must access the markets regardless of rate environment.

PART IV: MANAGEMENT, COMPENSATION, AND GOVERNANCE

4.1 Executive Leadership

MCO’s executive team combines deep industry expertise, demonstrated operational excellence, and long tenures that reflect alignment with the company’s long-term strategic trajectory.

Robert S. Fauber — President & CEO (since January 1, 2021)

• Background: Career Moody’s executive with over 20 years at the firm. Served as President of Moody’s Investors Service (2016–2019, where the segment grew is revenue by $2.4bn to $2.9bn), COO of MCO (2019–2020), before assuming the CEO role. Prior experience at Citigroup/Salomon Smith Barney and NationsBank.

• Track Record under Fauber (2021–2025): Total revenue grew from $5.5bn to $7.7bn (+40%), MCO Adj. Operating Margin expanded from ~43% to 51.1%, MA ARR nearly doubled from ~$1.8bn to $3.5bn, and adjusted diluted EPS grew from ~$10.15 to $14.94 (+47%).
  The stock has meaningfully outperformed in this period. Fauber has executed the strategic pivot from a pure credit rating agency to an integrated risk intelligence platform.

• Strategic Clarity: Fauber has articulated a compelling three-pronged strategy: (1) maintain MIS as the ‘Agency of Choice’ through analytical quality and expansion into private credit/new markets; (2) scale MA into a platform business with compounding subscription revenue; and (3) invest in AI-enabled products that leverage Moody’s unique data and domain expertise, and partner with companies like Anthropic.

• Skin in the game: Fauber directly owns 75,489 shares of MCO common stock, or $34m invested in the company (however, low amount compared to his salary - see details later).

Noémie Heuland — Senior VP & CFO (since August 2023)

• Background: French-born CPA with extensive financial services experience. Prior to MCO, Heuland held senior finance roles at MUFG Americas Holdings Corp. She brings rigorous financial discipline and a focus on operational efficiency to MCO’s capital allocation framework.

• FY2025 Performance: Heuland’s first full year driving the financial strategy delivered exceptional results — FCF grew to $2.575bn, adj. operating margin expanded 300bps, and the balance sheet was strengthened with $700m in debt repayment.

• On the positive side, she has extensive experience in SAP, which shares multiple similarities with MA financials. On the negative, the profile seems less strategic oriented, but it’s not a pure treasury also. It looks balanced.

Other Key Executives

• Michael West — President, Moody’s Ratings: 20+ years at Moody’s, previously Head of MIS Ratings and Research, Head of Global Structured Finance. Deep domain expertise in ratings methodology.

• Stephen Tulenko — President, Moody’s Analytics: 35+ years at Moody’s, having joined in 1990 before MA even existed as a separate entity. Leads MA’s commercial strategy and product innovation.

• Richard Steele — EVP & General Counsel: Provides legal oversight critical for a NRSRO navigating complex global regulatory environments.

According to Yahoo Finance, insiders have acquired more than $30m in stock over the last 6 months.

However, overall skin in the game is not huge for majority of the team.

4.2 CEO Compensation Structure and Shareholder Alignment

MCO’s executive compensation framework is designed to align management incentives tightly with long-term shareholder value creation — over 90% of CEO pay is variable and tied to performance metrics, with significant equity ownership requirements ensuring skin-in-the-game.

CEO Compensation Philosophy

Pay Mix: ~94% of CEO Fauber’s target total direct compensation is variable (’at risk’) — consisting of annual bonus (NEI Plan), performance share awards (PSAs), and time-based restricted stock units (RSUs). Only ~6% is fixed base salary ($1.1m for FY2025). This is one of the highest ‘at risk’ ratios in the S&P 500, reflecting the Board’s conviction in performance-linked pay.

CEO total compensation in 2025 was $17.6m, broken down as:

• $1.1m base salary (unchanged from 2024),

• $2.2m cash bonus

• $11.4m in stock awards, and $2.8M, in option awards (total equity $14.2m),

Key Performance Metrics in Compensation

• Annual Bonus (NEI Plan): Moody's Non-Equity Incentive Plan splits the cash incentive into two components.

  • Two-thirds is based on three pre-set financial metrics:

    • MIS Operating Income (50% weight),

    • MA Operating Income (25% weight), and

    • MA ARR (25% weight). Maximum payout requires exceeding targets by more than 30%, 20%, and 5% respectively — thresholds designed to require extraordinary performance.

  • The remaining one-third is based on a qualitative assessment of Strategic & Operational (S&O) objectives evaluated through an OKR framework, with specific priorities set at the beginning of each year but not publicly disclosed. For FY2025, all three financial targets were exceeded, resulting in above-target payouts.

• Performance Share Awards (PSAs): The primary long-term incentive vehicle. PSAs vest over a 3-year performance period based on:

  • 3-year cumulative Adjusted Diluted EPS growth (50% weight) a metric that is aligned with FCF as this is an asset-light business that don’t requires extensive working capital management

  • Relative Total Shareholder Return (TSR) versus the S&P 500 and S&P 500 Financial Services Index (50% weight).

  • PSA payout can range from 0% to 225% of target, creating meaningful upside for value creation and downside for underperformance.

Equity Ownership and Skin-in-the-Game

• CEO Stock Ownership Guidelines: CEO Fauber is required to hold MCO stock worth at least 6x his base salary (6 × $1.1m = $6.6m minimum). He owns ~$33m in stock.

• Executive Officers Combined: MCO’s insider ownership (directors and executive officers combined) is relatively modest in percentage terms (~0.3% of shares), which is typical for a large-cap company with significant institutional ownership. The compensation structure — heavily equity-weighted — ensures that this class collectively has tens of millions at stake in MCO’s performance.

• Berkshire Hathaway Alignment: Warren Buffett’s Berkshire Hathaway has held ~13% of MCO since the 2000 spin-off without adding or reducing the position materially for decades — a decades-long implicit endorsement of the franchise’s enduring economic characteristics. As of early 2026, Berkshire holds approximately 24.6m shares (~13.6% of outstanding), worth ~$10.6bn at current prices.

Although Moody’s retribution system lacks some other components such as FCF, these companies require low capex to keep expanding. For these reasons, I consider the retribution as aligned with the shareholders’ interests.

• I would like to see more skin in the game, but at least we have Berkshire as the anchor investor

PART V: MOODY’S CORPORATION vs. S&P GLOBAL — COMPARATIVE ANALYSIS

Note: this is a high level overview of both companies.

5.1 Overview: Two Sides of the Same Moat

MCO and SPGI are the only two truly global financial intelligence duopolists — owning the market in credit ratings, and providing financial data, and risk analytics. They are more co-monopolists than competitors in their core businesses, yet diverge significantly in scope, portfolio mix, and financial profile.

• Scale Difference: SPGI at $15.3bn revenue in FY2025 is approximately 2x the size of MCO at $7.7bn. This primarily reflects SPGI’s diversification into commodities (Energy/Platts), automotive data (Mobility, to be spun off mid-2026), and a significantly larger financial data business (Market Intelligence at $4.9bn vs. MA at $3.6bn).

• Portfolio Complexity: SPGI operates five distinct segments (Ratings, Market Intelligence, Indices, Energy, Mobility) and is actively reshaping its portfolio with the pending Mobility spin (mid-2026) and the $1.8bn acquisition of With Intelligence (closed November 2025). MCO’s two-segment structure is simpler, more focused, and easier to analyze.

• Ratings Businesses: Nearly equivalent in scale ($4.1bn MCO MIS vs. $4.7bn SPGI Ratings) with comparable margins (~63.6% MCO MIS adj. margin vs. ~65% SPGI Ratings adj. margin). MCO reported $6.6tn in MIS-rated issuance; SPGI reports $4.3tn in billed issuance (different methodologies make direct comparison imperfect).

5.2 Financial Metrics Comparison — FY2024 and FY2025

S&P is a larger company than Moody’s as it ratings business has a larger market share, and also due to the additional services provided like the indices.

• However, Moody’s looks more profitable than S&P, signaling that despite lower size, the company operates very efficiently

On average, Moody’s generates more cash per $ of revenue and has a lighter balance sheet. This provides more cushion in case the new AI era requires some defensive investments.

5.3 Where MCO Wins

On the metrics that matter most to long-term investors — margin profile, revenue quality, capital efficiency, and dividend compounding — MCO consistently outperforms or matches SPGI despite being half its size.

• Superior Adjusted Operating Margin: MCO’s 51.1% adj. operating margin in FY2025 is 350bps above SPGI’s 47.6%. This structural gap reflects MCO’s leaner cost structure, lower capex intensity, and the operating leverage in its two-segment model. With FY2026 guidance of 52–53%, MCO’s margin trajectory is steeper.

• Higher FCF Margin: MCO’s reported FCF margin of 33.4% is ~500bps above SPGI’s 28.6%, reflecting lower capex requirements (4.2% vs. 2.4% of revenue) and superior working capital management.

• Lower Leverage: MCO net debt/EBITDA of ~1.1x compares favorably to SPGI at ~2.3x. This balance sheet advantage gives MCO more optionality for M&A, buybacks, or debt reduction without financial stress.

• Superior Dividend Growth: MCO has grown its dividend at a 17% CAGR since 2001 — through every recession and market cycle. SPGI’s dividend growth history, while solid, is ~8% CAGR. For long-term dividend compounders, MCO is the superior vehicle.

• Revenue Quality: With MA’s 96% recurring revenue and MIS’s structural monitoring fee base, MCO generates a higher proportion of predictable revenue than SPGI (which still has significant transactional exposure in Energy and Mobility, and non-subscription volatility in Market Intelligence).

5.4 Where SPGI Wins

SPGI’s larger scale, and ownership of the S&P Dow Jones Indices franchise — one of the highest-quality businesses on Earth — make it a compelling alternative for investors prioritizing raw scale and asset-linked fee exposure.

• The largest credit rating agency in the world, holding ~50% of market share, compared of ~1/3 for Moody’s

• S&P Dow Jones Indices: SPGI’s Indices segment ($1.859bn revenue, ~71% adj. margin in FY2025) is arguably the single-best business in the world — asset-linked fees tied to $10tn+ in AUM benchmarked to S&P indices generate compounding, near-zero marginal cost revenue. MCO has no equivalent. This is SPGI’s crown jewel.

• Larger Analytics Business: SPGI Market Intelligence ($4.9bn) is nearly 40% larger than MA ($3.6bn), providing greater absolute scale in the financial data market, but might face more headwinds that Moody’s.

• More Aggressive Capital Return: SPGI returned $6.4bn to shareholders in FY2025 (vs. MCO’s $2.3bn), including $5.1bn in buybacks, driving faster per-share earnings accretion. SPGI has been more aggressive in leveraging its balance sheet to return capital.

5.6 Investment Conclusion: MCO vs. SPGI

Both MCO and SPGI are exceptional long-term compounders, but they offer distinct investment profiles — MCO trades at a slight discount to SPGI on EV/EBITDA while offering higher margins, lower leverage, and a superior dividend growth record.

• MCO is the purer play on the credit ratings cycle and financial/risk intelligence platform evolution. Its two-segment focus makes it easier to underwrite, with cleaner exposure to debt market activity and all the surrounding services.

• SPGI is the broader diversified financial intelligence conglomerate with the incremental optionality of Indices (world-class asset-linked fee stream) but more portfolio complexity and higher absolute leverage.

• Valuation Perspective: Both trade at ~27–30x trailing earnings — a premium warranted by the quality of the franchise, but not demanding given the compounding track record, secular growth tailwinds (private credit, AI, emerging market disintermediation), and pricing power.

Since 2009, both have delivered similar returns, while S&P has always been slightly above Moody’s. The threat of AI has impacted more S&P, as its core product Capital IQ could face higher risks than Moody’s.

• In the long-term, both companies have delivered solid returns.

• Both companies offer services that the clients need (either by regulation, or because its an essential service).

• Both companies operate in an oligopoly across their different segments.

Part VI: Financial Analysis

6.1. Global Revenue

Over the last 25 years, revenue has increased at a CAGR of +10.7% from $800m to $7,700m.

• Each of the two business units contributed similar revenue growth over the last 25 years, with ~$3.5bn each.

• Revenue declined in only two years: 2008 and 2022, reflecting that the company is not inmune to the macroeconomic environment, but quickly recovers after any debt crisis.

• Currently, MIS represents 53% of the revenue and MA the remaining 47%. Pre-pandemic was 60/40

6.2 Moody’s Investor Services Revenue

Over the past 25 years, the credit rating segment (MIS) only posted 2 years of negative revenue grow

• This reflects its strong market positioning: its services are essential to the debt system

• With Moody’s in the portfolio you are not fully protected to financial crisis, but the company tends to recover fast after markets normalized.

• In the years of crisis (2008, 2022), the company suffered strong revenue declines, but always will keep increase afterwards.

• Credit markets keep expanding, and their service is needed to issue debt securities, providing certainty of cash flows over long periods, as there is — as of today — very limited risk of disruption.

How does Moody’s increases its revenue?

Moody’s Investor Services (the rating agency) increases its revenue through a combination of pricing power and volume. However, my research suggests it’s mainly through volume

• Revenue increases as Moody’s increases the volume of debt rated. This comes through a combination of existing issuers refinancing their debt and acquisition of new customers (around 750 per year)

• Based on past reported volumes, implied rate seems stable at ~4 bps of the volume issued

• Additionally, there is a high proportion of recurring revenue, from the debt already issued. It currently stands at 33% of the revenue of the segment (it has increased from ~$1.1bn in 2019 to ~1.4bn in 2025)

• MIS revenue equation= revenue from current debt issued (monitoring fees, which increase with higher debt issued every year) + fees from debt new issues (current issuers + new issuers - companies not issuing more debt)

As explained in the prior sections, half of the revenue from credit ratings is generated through its corporate finance segment, which are corporate bonds markets

• During the last year, the debt markets grew at 7% and Moody’s captured a revenue growth of 9%

Although we discussed about some level of volatility in revenue as its dependent on debt issues, debt tends to be a recurring financing instrument, as in many occasions debt is refinanced at maturity

• There is a strong level of recurrency as debt tends to accumulate in the balance sheet of the companies

• Although not reported by Moody’s, there is a significant amount of revenue coming from recurring debt

• In addition to this recurring debt, the company captures revenue from around 750 new issuers every year, that need a rating from Moody’s

There is a strong level of refinancing coming in the future years

• Both Moody’s and S&P present the future refinancing of current debt.

• Moody’s confirms that refinancing needs up to $5.2tn over the next four years

Where do we stand in today’s markets?

• The company projects a positive momentum for debt markets, with default rates for speculative-grade bons to decline below historical average.

• However, it’s still premature to consider that 2026 will remain as positive as currently expected. But we are not interested in the next quarter.

6.3. Moody’s Analytics Revenue

Moody’s Analytics presents an ever better development. While the credit rating segment can experience some volatility as its dependent on the credit markets, MA segment provides stable revenue growth.

• Since 2001, revenue has increased at a CAGR of +22%, from $30m to $3,600m

• During the 24 years, revenue growth has always been positive and above 5%

• MA is necessary platform for financial institutions and provides stable revenue and cash flows to the company

Moody’s Analytics segment growth comes from pricing power (+7% per year over the last years) and volume (+8-9% in the last 3 years)

• Historically, revenue growth at MA has been at ~10%

• The company increases its customer base by ~95%, and adds additional ~7% each year, leading to an increase of c.2% per year

• The rest of the growth comes from pricing and upgrades, representing ~8%

• With the introduction of AI tools, we can expect this segment to keep increasing at the same rates in the coming years.

Moody’s Analytics platform provides stabilization of the revenue adding more predictability to the cash flows.

6.4 Moody’s Global Operating income

Operating income has increased at a similar pace than revenue at 10.3% CAGR over the last 25 years.

Compensation expenses are the largest cost representing ~33% of the revenue, and non-compensation represents ~15% of the revenue.

• Compensation is by far the largest cost. Moody's has ~15,000 employees globally, heavily weighted toward high-cost professionals — credit analysts, quantitative researchers, software engineers, economists, and sales staff.

• Technology and infrastructure (AWS, Azure), software development, cybersecurity, data acquisition, etc.

Over the last three years, revenue has outpaced the cost increases, increasing operating margin from 34.4% to 43.4%.

• On an adjusted basis, the operating margin stands at 44.9%

• Moody’s rating services drives this high operating margin, posting an operating margin during 2025 of 66.7% (increasing from 51.8% in 2022, a year of downturn).

• Moody’s Analytics provides predictable revenue growth, but at the expense of operating margins. MA margins stand at ~30-33%, which are significantly lower than the rating platform, but providing predictability to the P&L.

Looking at EBITDA level, the EBITDA margin stands at 51.1%

• This margin signals the pricing power that Moody’s has. By offering a product that all issuer need, and with just the competition from S&P, Moody’s can earn a significant margin while still representing a small expense for the issuer.

• Since the IPO in 2000, adjusted EBITDA margin has always been above 40%, and has ranged between 40% and 57%, showing the moat of this company.

• Margin currently stands close to historical max levels

6.5 Free Cash Flow and Earnings

Never in history this company has reported a negative FCF. Current FCF generation stands at $2.5bn (after accounting for repurchases related to stock-based compensation).

• FCF margin stands at 32% (i.e., for every $100 of revenue, the company retains $32 as free cash flow)

• Growing the business does not require high amounts of capex: The company invests ~$300m in capex every year, while operating income is increasing more than that.

• It’s a cash flow making machine, with very little risk of disruption and low capex needs to keep increasing the business.

The company returns a significant amount of the cash back to the shareholders through a combination of share buyback and dividends

• Shareholder distributions have accelerated in the past, driven by increasing FCF and the solid balance sheet

• Dividends have increased at a CAGR of 20%, and total shareholder distributions increased at ~16%

• With the combination of increasing DPS and reduced shares base, dividends double nearly every 5-6 years

• In the past, when significant opportunities arise, the BoD authoirizes massive SBB (e.g., in 2007)

Last year, the company repurchased $1.6bn (2% of the market cap).

• The number of shares reduces by an average of 2% per year as the company does not issue massive shares to its employees and does acquisitions fully with cash

• SBC has increased in the past years, but remains at healthy levels (3% of the revenue)

• This year, the company plans $2.5bn of SBB (~3% of market cap)

After accounting this steady reduction of the shares, both EPS and FCF per share have increased at a CAGR of +14%, never posting negative earnings.

• There is some volatility during the period, but a clear trend of expanded FCF generation

6.6 Balance Sheet

The company has a low leverage, and currently stands at 1.2x EBITDA

• Net debt stands at $4.9 post leases.

• Leverage peaked in 2017 after the acquisition of Bureau van Dijk (their largest acquisition of $3.5bn)

• Leverage peaked again in 2022 after the acquisition of RMS (Risk Management Solutions) for $2bn

• The company has a solid balance sheet allowing them to perform acquisitions with just cash, avoiding diluting the shareholders.

• With its moat, and strong cash flow generation, the company can easily deleverage the balance sheet in a few years.

Debt maturities are well balanced with no significant refinancing activity in the coming years.

• From 2027 to 2061, the company spread its maturities across more than 30 years

• Moody’s has financed European acquisitions (e.g., BvD) with local debt reducing currency risks

• Majority of the debt is issued with fixed coupons, reducing the exposure to interest rates

Part VII: Valuation and Expected Returns

⚠️Note: This is not investment recommendation⚠️

7.1 Current Share Price and Valuation Multiples

Moody’s has remained flat during the last year, mainly affected by liberation day and the crisis of Hormuz.

• Shares reached minimums of 2026 during February 2026, driven by fears of macroeconomic headwinds driven by potential rise in inflation, and therefore, interest rates, which will lead to lower activity in the capital markets.

• Currently trades at $455 per share having been very volatile in the past two months (in line with market)

Current P/E stands right at the average of the last decade, suggesting it’s a fair valuation.

• Since pandemic, there’s been a re-rating as the company keeps expanding its stable business of Moody’s Analytics, and companies and governments keep issuing debt

• P/E has been consistently above 30x, suggesting this could be a good entry point.

7.2 Expected Returns

Moody’s has traded sideways in the last ~2 years, while the business has kept growing at a fast pace.

• Stock reached minimums at $410 per share during the year, but stock is 17% below it’s all-time-highs of January 2026 (just a few months ago)

• Looking at 2026 guidance, stock is trading at 27-28x FCF and earnings

I bought shares at $450, roughly the current market price. At this price, Moody’s is trading at 32.6x last 12 months FCF.

While these seem high multiples, we need to consider that FCF per share has grown at 14.3% during the last 25 years, and I expect it will continue to do so driven by continuous increase of debt, and the implementation of AI into their products, being more valuable and also allowing the company to be more efficient.

At 15% growth (through a combination of operating leverage and share buybacks), this implies a 16x multiple over projected FCF in 2030.

The base case considers an expected IRR over a 5-year period of ~13%.

Projected returns over a 5-year period (see assumptions in appendix)

However, future growth and exit multiple is uncertain and this will be the range of scenarios (note that I value over 5-year period, but will probably hold the stock much longer period if business keeps undisrupted).

• Over 5 year period, only if the company slows its growth by half will post negative returns.

• It’s a possible scenario, but given current valuation is in line with historical average, and projected growth is similar as what has happened in the past, I remain confident.

• Note that base case considers a multiple of 30x at exit in year 2030 (assuming 2030 FCF, but in reality the trailing multiple today is ~32x.

• I believe it’s a conservative investment, and considering current valuations surrounding the S&P 500, it offers less risk.

7.3 Looking Ahead

While these IRRs might no impress many of you, in my view, these are attractive given:

• The S&P is at all-time-highs, and trades at its highest valuation since the dot com bubble, which increases the risk of obtaining low returns during the next decade

• Current risks in the S&P 500: there is a huge concentration on 10 companies, which now represent 40% of the market cap, despite representing less than 30% of the earnings

• S&P 500 is heavily biased to AI, in an ecosystem where OpenAI, Anthropic, etc., are loosing high amounts of money, while Nvidia, Amazon, Microsoft keep earning high earnings, which doesn’t seem sustainable.

• Moody’s is an asset-light model, with no risk of disruption as their credit ratings are required to issue any debt security, and its Moody’s Analytics platform is embedded in major financial institutions.

I summarize the above in the following three charts:

1) We are close to dot com bubble multiples7

2) Historically, the higher the forward multiple, the lower the expected returns over 10-year period8

3) The index is excessively concentrated in the top 10 companies, that now represent more than 40%.9

I hope you enjoyed this investment thesis

Best,

Phil

This is not investment recommendation.

Asymmetric Ventures

Disclaimer:

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The …

Read more

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The valuations and analyses presented here are based on publicly available

Please remember that nothing in this post is investment recommendation.

Dear reader,

This will be the last deep dive on Uber’s investment thesis. Today we focus on valuation.

To value Uber, we first need to add some context.

Uber is by far the largest mobility platform on earth.

It might not be number 1 in all the markets where they operate, but on aggregate, there is no company with similar size.

This obviously should command a premium vs. peers when discussing valuation. But… It might not be the case.

Uber is sometimes cheaper than competitors, despite having a superior market positioning.

Current valuation is not in the “value” territory, but offers some margin of safety, which for a company like this, it’s not common.

Investors need to have their own views on the risk of disruption by AVs in order to consider if current valuation is attractive or not.

Uber vs. Peers

Uber is larger than the sum of DiDi and Delivery Hero, the largest competitors in the mobility and delivery space.

This matters because when the focus in on the risk from AVs, many people underestimate the power of the platform and the benefits from diversification.

In mobility, only Didi is larger than Uber, as the company is the leader in China. Exclude Didi, and no company comes close to Uber.

In the delivery segment, Uber seems to be less ahead than competition.

• Door Dash is the #1 player in the US, and significantly ahead of Uber.

• Delivery Hero is the largest pure delivery competitor around the world, with focus on emerging countries.

• Uber is expanding its TAM across all geographies and becoming a last-mile logistic platform in the major cities.

As seen in these charts, Uber has a dominant position in Western economies.

A position that can continue to consolidate as all other companies are significantly below in terms of returns.

• Uber generates 3x more EBITDA than Door Dash, the second largest player in the mobility industry by EBITDA.

• Only Door Dash posts a higher 2024 Adjusted EBITDA margin of 17.7%, compared to 14.7% of Uber (in 2025 it’s closer to 17%). Adjust for SBC, and the gap is significantly reduced.

• The rest of the players post low-single-digit EBITDA margins, except Grab with 11%.

As a conclusion, in terms of size, Uber stands clearly above all companies. It might not be the largest player in all geographies where they operate, but it’s the largest platform in Western economies.

This is very important because it generates a moat over the company. What matters in this business is having a reliable source of permanent customers.

Uber reached 200m in the 4Q 2025, and there is still room for further growth.

Summary of Uber Financials

P&L

Uber is considered a mature platform given they are already present in every major city.

Despite this consideration, Uber is a growth company that is generating strong KPIs, and more importantly, it’s a very profitable company.

• Company surpassed the 200m active customers in the latest results.

• Gross bookings kept growing in the high teens (2025 gross bookings great at +18.1%)

Read more

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The valuations and analyses presented here are based on publicly available

Please remember that nothing in this post is investment recommendation.

I. Introduction To Uber Delivery

The delivery segment offers enormous opportunities and faces significantly less risk from AVs, as human interaction remains necessary due to courier involvement and the complexity of urban environments.

Growth over recent years has been spectacular, with additional growth levers emerging as the company evolves into a key logistics platform within cities.

While the market debate focuses on autonomous vehicles, what Uber is building in delivery is extremely important—they are becoming the core logistics platform in major cities.

Historically, the company was very aggressive in capturing market share in the food delivery segment. While we should expect this to continue, the platform is gaining significant scale and increasing operating leverage.

Over time, the platform is positioned to become the leading player in the majority of its markets, as competing against a global player like Uber becomes increasingly difficult.

EBITDA is expanding rapidly, and Uber is the leading player in many of the markets where they operate.

Post-pandemic, we witnessed a boom in delivery. While growth eventually moderated, Uber has continued growing on all fronts. From 2021 to 2023:

• More demand: +8% consumers and +11% trips per consumer

• More supply: +19% merchants and +29% couriers

As with mobility, expected growth comes from a combination of increased supply and demand, both benefiting from favorable tailwinds.

Delivery Is Accelerating Its Growth

The platform is expanding every quarter, benefiting from the same virtuous cycle as Mobility. The larger the offering, the more consumers are attracted, and the more consumers attracted, the more merchants join the platform, and so on.

The company is expanding the platform through different value propositions:

• Integrate Uber into loyalty programs from top companies like Amex, Delta, and Marriott

• Integrate Uber into restaurant and merchant management apps such as Deliverect, Olo, and Square

• Improve platform monetization and create additional revenue streams

• Strengthen last-mile logistics to become a logistics platform, not just a marketplace

All of this is amplified by the Uber One membership, which now has approximately 36 million users.

Consumer Value

Uber Delivery integrates with loyalty programs, credit cards, airlines, and travel brands such as Delta (2nd largest airline), Amex, Marriott (largest hotel brand in the world), and Revolut. This increases switching costs for both Uber and its partners.

Also, the company focuses on customer experience. As an example, recently the platform made a mistake and a rifer had to collect two different items, my burger and some grocery things for another. My burger came late and cold. I sent a message to Uber and immediately, without talking to anybody, the company issued an immediate refund.

Merchant Enablement

Uber aims to make it easier for restaurants and retailers to operate, grow, and scale on Uber. Uber integrates directly into merchants’ existing tools such as:

• Deliverect (connects delivery apps directly to a restaurant point of sale)

• Olo (a digital ordering and guest engagement platform used by large restaurant brands such as Shake Shack, Chipotle, and Five Guys)

• OpenTable (restaurant management platform owned by Booking Holdings)

• Square (a payments ecosystem for small and mid-sized businesses)

Platform Enhancement

Uber is improving monetization, advertising, and payment flexibility. Instead of earning primarily from delivery fees and merchant commissions, Uber is expanding into new high-margin revenue streams such as advertising and sponsored placements.

The company is partnering with:

• Criteo, a commerce media platform specializing in performance-based ads that allows merchants to retarget users to increase order frequency and improve unit economics without affecting delivery costs. Criteo acts as a demand amplifier for the platform.

• Instacart Ads, one of the most successful retail media networks. The partnership aims to make it easier for consumer packaged goods brands of all sizes to advertise on their platform, not just the largest brands they work with directly.

• Klarna, one of the largest Buy Now, Pay Later (BNPL) platforms, enabling customers to split and defer payments on delivery (especially useful for premium or expensive products). This allows Uber to access the BNPL space without assuming the associated credit risk.

Last-Mile Logistics

The last mile is the most challenging and expensive part of delivery. To expand delivery beyond Uber Eats, Uber needs to attract large retailers and enterprises that require higher logistics standards—scheduled delivery, multi-carrier routing, etc.

Uber is partnering with third-party providers to enhance last-mile logistics:

• Bringg, a company that acts as a “control tower” for delivery operations and routes orders across Uber, internal fleets, and third-party couriers. The platform is used by large retailers and grocers, and Uber aims to become one carrier among many within Bringg.

• Delivery Solutions, a multi-carrier management platform focused on retail and e-commerce that connects retailers with dozens of carriers, enabling same-day, next-day, and scheduled deliveries. By partnering with this platform, Uber can be selected automatically when same-day delivery is needed, local inventory is closest, or Uber offers the cheapest or fastest alternative.

• Nash, a last-mile delivery platform built for Shopify and similar platforms. Nash now integrates Uber directly into e-commerce checkout flows.

Instead of building everything in-house, Uber aims to make operations seamless for merchants and restaurants, eliminating all possible barriers. This strategy allows Uber Delivery to constantly expand its platforms and service offerings.

It’s not only about ensuring a great user experience but also making merchants’ and restaurants’ operations significantly easier.

Key Growth Levers for Coming Years

Read more

Disclaimer. Please read full disclaimer at the end of the page before reading the article. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The valuations and analyses presented here are based on publicly available

Please remember that nothing in this post is investment recommendation.

Autonomous vehicles are a reality in many cities and will become increasingly prevalent over the next decades. The ecosystem is vast, encompassing full-stack AV companies, car manufacturers, technology providers, and more.

This analysis focuses on robotaxis and their implications for Uber.

If you want to skip the detailed analysis, here are my key conclusions:

• I believe Uber will successfully defend against threats from Waymo, Tesla, and other AV players.

• The company is laser-focused on becoming the “everything platform,” and its relevance in mobility should only increase over time.

• AVs will commoditize over time. As expansion will take some time, by the time regulation eases, multiple players will compete against each other.

• Greater competition in the AV space actually benefits Uber, as demand aggregators will play a crucial role.

• Some AV players will form partnerships with Uber; others will try compete directly (notably Tesla — whose results are yet unclear).

• The economics of a 20% take rate are viable, which is why management is actively exploring this pricing structure.

• In an adverse scenario, Uber might lose 15-20% of mobility revenue. However:

  • Mobility has potential to continue growing at double digits, mitigating the impact.

  • AV economics are more attractive.

  • The Delivery segment is experiencing significant TAM expansion.

  • Uber has substantial financial firepower to defend and expand the platform.

    • As of September 2025, the company held $8.4 billion in cash.

    • The company is generating approximately $7 billion in FCF after deducting stock-based compensation.

Bottom line: Even in a negative scenario, I believe Uber would generate similar cash flow to today’s levels. At approximately 25x FCF, this significantly reduces downside risk.

In the following sections, we’ll examine each major player in detail and discuss potential scenarios going forward.

Read more

Disclaimer. Please read full disclaimer at the end of the page before reading the article. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The valuations and analyses presented here are based on publicly available

Please remember that nothing in this post is investment recommendation.

Dear readers,

Most of you are familiar with Uber and have a general understanding of their operations. However, I want to provide a comprehensive series of post that explain the business model and demonstrates the company’s profitability in detail.

I was genuinely surprised when I examined their financials closely and discovered just how profitable the company has become.

I had long held the mistaken belief that their aggressive marketing strategies would prove unprofitable. I was completely wrong.

The company currently trades at an attractive valuation amid concerns about the threat posed by autonomous vehicles (AVs). Understanding the current situation and the implications of AV expansion is therefore critical to evaluating the investment opportunity.

Spoiler: I invested in Uber in late November, and it now represents 3.4% of my portfolio.

While many of you may already be familiar with the company, I’ve dedicated considerable time to understanding it deeply, and I believe this comprehensive analysis is worth sharing.

Get 15% off for 1 year

Read more

Disclaimer. Please read full disclaimer at the end of the page before reading the report. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The valuations and analyses presented here are based on publicly available

Executive Summary

Note: the following content do not constitute investment recommendation.

Introduction: an opportunity in the UK in a very resilient sector

• CVS Group, is a veterinary provider in the UK and Australia.

• In 2024, the CMA (UK’s watchdog), launched an investigation on the UK veterinary market.

• Stock immediately fell by more than 50% following the news.

• Investment thesis relied on the market overreaction and that worst case scenario was not likely.

• We bought shares at the time when the narrative about the company was most negative, at an average price of £9.5 per share.

• Flash-forward 18 months: risks are very limited, and company is better than it was. Current gains are just +10% (reaching +50% some weeks ago), presenting a new opportunity.

CVS Group - do not confuse with the US healthcare company - provides veterinary services across the UK and Australia

• The company owns 425 practices in the UK and ~50 in Australia.

• Company is rapidly expanding in Australia, where they entered ~2 years ago.

• The company generates £670 million in annual revenue, of which 89% comes from Veterinary practices, 4.5% from laboratories, and 6.5% from their online shop Animed Direct.

The UK Veterinary market is large and consolidated between large corporates, including CVS

• The UK has one of the largest pet populations, with an estimated of 36 million pets.

• There are 5,500 practices (i.e., one practice per 6,500 pets).

• In the UK, large corporate groups own ~60% of the market share. CVS has a 10% share. Some of the groups are backed by large private equity firms such as EQT.

The CMA Investigation: constant delays and a final resolution expected by May 2026, nearly 3 years after

• Initially, the CMA launched a market review in September 2023.

• After their initial review, the CMA launched an investigation in May 2024 to assess whether veterinary practices were charging excessive fees to pet owners.

• Similar to every investigation by public authorities, their initial claims were a statement against free market, claiming that companies were earning more than they should.

• Putting things into perspective: CVS Group earns an EBITDA margin of 20%, which is significantly below other critical services for a country such as fiber, where telecom operators earn significantly higher margins.

• CVS and many other groups invest millions every year in new equipment, refurbishing practices, etc.

• The statutory deadline has been pushed several times, and now it is expected to end in May, which is three years after their initial review - delays that are not reasonable and affect very negatively the market.

Initial claims by the CMA seemed excessive and market feared the worst case scenario

• Concentration - Was the sector excessively concentrated between corporates with high market shares? Could this force large groups to divest their practices?

• Pricing limits? limiting referrals, prescription medicines, etc.?

• In December 2024 I published my investment thesis on CVS: the CMA remedies couldn’t go as far as expected.

We analyzed the remedies proposed and past resolutions: market was overreacting

• Market feared forced sale of clinics. We analyzed the concentration and market share of CVS and that was not realistic.

• We analyzed past remedies imposed by the CMA - Market was fearing unprecedent measures.

• Overall, the investment thesis relied that remedies will have a limited impact on CVS, as the company didn’t dominate any specific region, nor was earning above-market margins.

CMA has published the provisional remedies, which are in line with the investment thesis:

• Provide a price list for specific services and treatments on the websites, and be clear if the practice is part of a large group.

• Provide itemized bills for treatments and services.

• Provide a written estimate for treatments that could reasonably be expected to cost more than £500.

• Inform pet owners that they can get written prescriptions and that medicines may be cheaper online. Cap the fee for providing a written prescription at £16.

• Requiring vets to give pricing breakdowns for pet care plans.

Remedies will have low-to-moderate impact on CVS, something largely discounted by current share price

• Choosing a vet is a function of convenience and confidence. Price is not the major factor in the decision.

• Remedies will not include force sales, and further M&A will be allowed.

• Main issue remains prescription medicines. This is mitigated by the fact that consumers can acquire them online (even through CVS website Animed), and that some others are required immediately.

• Remedies set will have some negative impact on CVS in the short-term, but will also arise some opportunities to further consolidate the industry. M&A will be posible.

• This impact will be offset during the next years with the development of the Australian business and continued investments in their practices.

How much revenue is at risk?

• Main risk is currently the prescription of medicines. CMA wants to encourage people to buy medicines online.

• CVS generates 20% of the revenues from medicines.

• There are mitigants to CMAs potential decision: CVS owns an online store and many medicines require immediate acquisition.

• CVS will still be able to charge a fee for providing a written prescription.

CVS is well positioned to capture further growth, from both organic and inorganic opportunities

• Company’s performance remains good. Revenue from veterinary practices keeps increasing every years, with a 2025 more challenging, but still delivering positive growth.

• EBITDA margin stands at 20%.

• Leverage is low, at 1.2x excluding leases.

• FCF stands at 10% of the revenue.

The Australian market opportunity will develop a new equity story

• Less regulated market, escaping current European regulations.

• A rich and stable economy, with similar culture.

• An under-developed veterinary market that allows for consolidation.

CVS remains a very interesting opportunity, yet share price is down by nearly 20% in the last weeks

• Company trades at an EV/EBITDA of 8.5x, significantly lower than what private equity firms were paying 5 years ago (12-15x EBITDA).

• Price-to-FCF stands at 12x, excluding expansionary capex.

• Company has decided to exit the AIM (UK’s alternative market) and move to the London Stock Exchange.

• The Main Market generally attracts a broader set of institutional investors compared to AIM. CVS Group’s board say the move will “improve trading liquidity”.

• Company is launching a £20 million share buyback program (2.3% of the market cap), a good movement from capital allocation perspective.

Market valuation is completely disconnected to real risks from CMA and from actual

In this post I will do a deep review of the current situation, the CMA review, and the current valuation for premium only subscribers.

Get 15% off for 1 year

Thank you,

Phil from Asymmetric Ventures

CVS Group Annual Update

Content:

1. Main Highlights of recent performance

2. Annual review of 2025 results

3. Valuation

4. CMA’s Provisional Remedies

5. Conclusions

Read more

Disclaimer. Please read full disclaimer at the end of the page before reading the report. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The valuations and analyses presented here are based on publicly available

Dear readers,

Today I present the second part of my analysis of LVMH’s Fashion & Leather Goods division. This took considerable time, as I conducted a thorough analysis of all their competitors.

I’m introducing a new format using more bullet points with more direct messages. I hope you enjoy it. Please leave your feedback at the end.

Part I: The Fashion & Leather Goods Industry

The luxury sector is highly competitive, with several dozen brands competing against each other.

Yet, despite this competition, the sector remains highly profitable.

Several factors contribute to this profitable environment:

• Pricing Power: Compared to the mass market, prices increase annually to maintain status and desirability.

• Limited Threat from New Entrants: The majority of brands are decades old, and the two largest are century-old brands.

• Resilient Consumer Base: Customers acquiring luxury goods tend to be financially more resilient than mass-market consumers.

• Exclusivity: These brands are rarely found in wholesale channels or offering discounted products.

These companies earn extraordinary margins, yet only a few new players can enter the market, and with limited impact.

There exists a massive moat in the form of branding, heritage, and quality that no other brands can replicate.

While many customers belong to the top 1%, many do not.

The fact that these expensive items are associated with society’s elite—unfortunately, we tend to associate a Rolex with a successful life—is the core element surrounding these brands.

💬A middle-class worker will purchase a €2,000 Louis Vuitton bag rather than a €2,000 bag from a new brand attempting to compete against LV. The reason is simple: LV symbols elevate the person; the alternative might not.

For some, it’s aspiration; for others, it’s belonging to a selected club in society. These items generate emotions while wearing them. In a quote from Forbes, we can see what people are willing to sacrifice to buy an LV bag:

“During the worst of the downturn last year, he adds [an HSBC analyst], “some American women decided they would spend less on food or travel and buy a Louis Vuitton handbag.””

Many middle-class people perceive these articles as stores of value. This is partially true, as the depreciation of these articles is far less severe than that of mass-market brands.

Although purchasing requires significant effort for many people, they tend to become “recurrent” buyers. It might start with a small LV bag, then a silk scarf from Hermès, leading to additional purchases.

Industry Players and Key Figures

The industry is competitive, with many brands operating in the luxury space, but three brands stand above all others:

• Hermès: The king of luxury, earning the highest margins. Its financials are exceptional.

• Chanel: One of the most sophisticated brands in the fashion space.

• Louis Vuitton: The most popular and largest brand.

These three brands alone represent approximately €50+ billion of the total luxury industry. While the players are relatively similar in size, Louis Vuitton is the largest:

• Louis Vuitton: €21.5 billion

• Chanel: €17 billion

• Hermès: €15 billion

📌In 2022, Bernard Arnault announced that Louis Vuitton had crossed the €20 billion mark. Assuming +7.5% growth between 2022 and 2024 (in line with segment performance), Louis Vuitton revenues would be approximately €21.5 billion.

Analyzing the largest companies, LVMH has two in the top five: LV and CD. LVMH’s market share is substantial.

Read more

Disclaimer. Please read full disclaimer at the end of the page before reading the report. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The valuations and analyses presented here are based on publicly available

Introduction

In this series of posts we will analyze the core business of LVMH’s business: leather & fashion. It’s the crown jewel of the luxury conglomerate, earning extraordinary returns. It accounts for ~50% of total revenues and ~75% of operating profits of the group.

Whatever happens to this segment is what will drive the earnings and valuation of the company. The segment is now under some pressure, which has negatively impacted the valuation of the company.

This giant has experienced a significant increase in revenues as the world becomes richer every year. Same as the wine segment, many of the brands are more than a century old (Louis Vuitton, Loro Piana, Loewe), while many others have been around for decades.

This resilience commands a premium over premium or mass market brands.

Today I bring a post about the history of each brand, the present and how management is preparing the company for the future.

After understanding the history of the different brands we will be able to position them in the luxury space and analyze their returns. That will come in Part II, next week.

One thing I admire from LVMH is that the most iconic creative directors have worked for their brands. This explains the influence of the Group in the fashion space. You will find familiar all the names of the different people that will appear in the stories.

Each brand has followed a different story and is at different momentum.

Please note this is a brief history of each brand, to better understand the portfolio and not just simply briefly describing each of them.

If you are not interested in the history of each brands, during the next week we will get into the nitty gritty: the numbers and the positioning of the brands.

Part I: Louis Vuitton and Christian Dior

1. Louis Vuitton

History of the Company

The history of Louis Vuitton (LV, or Vuitton) is a story of a craftsman, a revolutionary product, and the creation of a global luxury empire.

It begins not with fashion, but with the humble art of trunk-making in 19th-century Paris.

In 1837, a young man named Louis Vuitton arrived in Paris and became an apprentice trunk maker to Monsieur Maréchal.

Travel in that era was arduous, and luggage was often dome-shaped, which made it difficult to stack. Vuitton recognized a need for a new type of luggage that was both durable and practical.

In 1854, he opened his own workshop and revolutionized the travel industry by introducing the flat-topped trunk, a design that was waterproof, airtight, and easily stackable. This innovation, along with the development of the durable Trianon canvas, laid the foundation for his brand's success.

The brand's iconic patterns were born out of a need for security and a desire for distinction. As the brand grew in popularity, so did the number of counterfeiters.

In 1888, Louis's son, Georges Vuitton, introduced the Damier Canvas pattern, featuring the "L. Vuitton" inscription, to combat imitation.

When that, too, was widely copied, he created the world-famous Monogram Canvas in 1896. This intricate pattern, with its floral motifs and interlocking "LV" logo, was designed to be virtually impossible to reproduce, and it quickly became a symbol of status and authenticity.

The image above it's very important. The design of current bags is more than a century old. This is both extraordinary and resilient. Try to name different products that have the same design since the start of the 1900s.

During the start of the century the brand was expanding internationally. It opened stores in New York, London, and Buenos Airies. In 1914 it opened the largest travel goods store in the world on the Champ-Élysées

As travel was quickly expanding, the company adapted their products to cars, trains and airplanes.

After WWII, they introduced in 1959 a Monogram canvas more supple and durable, allowing the creation of handbags. This innovation led to the creation of icons like the Noé bag (originally planned to carry champagne bottles), that are iconic models today.

One of the reasons why LV is such a popular brand able to creative desirability around the world is the fact that these bags have been existing for decades. This explains also the premium that luxury brands carry, as their terminal value is huge.

Under Henry Racamier (son-in-law of Gaston Vuitton), the company pursued an aggressive international expansion, opening boutiques worldwide and went public in 1984.

Creation of LVMH

After the Vuitton family's long stewardship, the brand underwent a major transformation in the late 20th century.

In 1987, Louis Vuitton merged with Moët Hennessy to create the luxury conglomerate LVMH as a way to protect both companies from hostile takeovers and to diversify the business.

In the 1980s, especially in Europe and the U.S., hostile takeovers were very common. Big corporations and financial groups were aggressively acquiring brands, often against the will of their management.

The idea was to create a big group strong enough to resist hostile takeovers. Ironically, it set the stage for Arnault.

The Figure of Bernard Arnault

Read more

Disclaimer. Please read full disclaimer at the end of the page before reading the report. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The valuations and analyses presented here are based on publicly available.

Dear reader,

A lot has been written about LVMH, yet many people still don’t fully understand this company. LVMH is a conglomerate of brands operating in the premium and luxury space. From fashion to Champagne, and even yacht manufacturing, LVMH is much more than just Louis Vuitton.

Now that the group is facing some pressure on revenue, the investment community continues to debate: Is LVMH luxury?

The question is simply wrong. Brands like Louis Vuitton are luxury brands — but LVMH is far more than just a debate over whether it's a luxury or non-luxury company.

It’s a conglomerate of dozens of independent brands. From champagne to yacht manufacturers. Yet, the market only focuses on Louis Vuitton - which makes sense as it represents a significant amount of the earnings, but LVMH is much more than that.

In this series of posts, we’ll cover each of the company’s business segments. I will do a deep dive of each division - something you won’t see in any other Substack account.

To do so, I’ll follow the same structure LVMH uses for reporting:

• Wines & Spirits

• Fashion & Leather Goods

• Perfumes & Cosmetics

• Watches & Jewelry

• Selective Retailing

• Other Activities

In the final post, I’ll bring everything together to form a complete view of the company — its present, and its future.

Executive Summary

Wines & Spirits represents the roots of LVMH. However, in recent years, it has become the weakest division, underperforming compared to the rest of the group.

Mr. Arnault has appointed the CFO of the Group as the new head of the division — a clear sign that a turnaround is expected. The goal is to improve profitability and avoid more quarters of negative growth.

This division continues under a partnership with Diageo - this is helping to mitigate the current negative environment, as 1/3 is not owned by LVMH.

The Champagne and Cognac businesses currently return a decent ROCE, but below other segments. In the past year, the ROCE of this division has dropped by more than 200 basis points (2 percentage points), while inventories have increased by over one billion euros.

While the division is currently under pressure, this business is several centuries old, doesn’t have any risk of disruption, and it’s extremely difficult to compete against brands like Moët et Chandon.

In this post, we’ll explore the brand portfolio, analyze the division’s profitability, and compare LVMH’s performance to competitors like Laurent Perrier and Rémy Cointreau — as well as to global peers like Diageo.

🔒Content below is for premium subscribers only. I’m currently offering a 15% discount or a 7-day trial.

Get 15% off for 1 year

Read more

Disclaimer. Please read full disclaimer at the end of the page before reading the report. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The valuations and analyses presented here are based on publicly available information and our interpretation of such data. By reading this blog, you agree to release us from any liability

Introduction

Watches of Switzerland reported its full-year results last week, and I have to admit, the numbers were disappointing.

The market responded with a roughly 10% drop in the share price, driven by three key factors:

• First, weak performance in the U.S. Despite management’s attempts to downplay the issue, market participants quickly recognized that the U.S. business is under significant pressure.

• Tariffs—while largely forgotten by capital markets—continue to weigh heavily on sentiment around WOSG.

• Last, the company issued soft guidance, particularly around margins. Management expects EBIT margin to decline by up to 100 basis points, even as revenues are projected to grow between 6% and 10%. This suggests that retailers are feeling the squeeze, with Rolex likely absorbing some of their margin to mitigate the impact of tariffs.

In today’s analysis, we’ll review Watches of Switzerland’s full-year performance and evaluate whether the current valuation is justified.

Although this remains my top holding in the portfolio, I aim to provide a fully transparent and unbiased assessment.

If you missed the initial write-ups:

Index of Annual Review:

1. Revenue Analysis

2. Portfolio Evolution and Performance

3. Financial Analysis

4. Valuation: Value Trap or Asymmetric Opportunity?

5. Final Word

Read more

Disclaimer. Please read full disclaimer at the end of the page before reading the report. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The valuations and analyses presented here are based on publicly available.

Index:

1. Introduction

2. The Aviation Market and Engine Suppliers

3. The Lifecycle of an Engine

4. Commercial Engines & Services

5. Competitive Advantages and SWOT

6. Management: Larry Culp’s Outsider Performance

I. Introduction

Dear Investors,

Today I am pleased to present one of my latest investments: GE Aerospace.

GE Aerospace emerged from multiple spin-offs at GE. It is the company that retained the ticker symbol GE and has quickly become one of the leading companies in the aviation sector.

The stock was trading at $50 per share in 2021 and climbed significantly to reach $200 per share in January 2025. Following volatility triggered by the trade war, the stock experienced a decline to $160 but swiftly recovered to approximately $200 per share.

GE Aerospace holds substantial competitive advantages along with a robust business model, ensuring stable cash flows over the coming decades. The company is uniquely positioned as the primary supplier for the world's best-selling airplanes.

While GE Aerospace designs and manufactures engines for commercial aviation and select military aircraft, it primarily operates as a services company.

In this first segment, we will concentrate exclusively on commercial aviation, which represents 70% of the company's total revenue.

Initial acquisition date: April 2024 Average acquisition price: $184.6
Ticker: GE
Market cap: £247 billion (share price of $231.8 as of May, 16)

II. The Aviation Market and Engine Suppliers

GE primarily focuses on commercial aviation, alongside some military aviation activities. Their core business is commercial aviation, where they supply engines for the majority of Airbus and Boeing aircraft.

Similar to aircraft manufacturing, the engine industry is an oligopoly dominated by three main companies.

Commercial Aviation: Facts and Trends

Introduction

The commercial aviation sector is dominated by Airbus and Boeing, which account for the vast majority of commercial aircraft production. Other manufacturers compete primarily within regional markets.

Aircraft manufacturers do not produce aircraft engines; instead, specialized companies invest billions into research and development to create them. Currently, three companies dominate globally:

• GE Aerospace: Leads the narrowbody segment through its joint venture with Safran, CFM International.

• Rolls-Royce: Major competitor in the widebody segment.

• Pratt & Whitney: Significant player in the narrowbody segment.

Next Generation Engines

The current trend is toward manufacturing narrowbody and widebody twin-engine aircraft, marking the end of the ultra-large aircraft era. New aircraft require larger, more efficient engines.

The latest generation of aircraft engines significantly improves fuel efficiency but may result in slower production rates. These modern engines often encounter initial service-entry difficulties, creating additional pressures on overhaul facilities and parts suppliers.

Hundreds of aircraft are projected to be grounded due to issues with Pratt & Whitney’s PW1000G engines following the discovery of quality defects in powder-metal components, prompting mandatory inspections.

Meanwhile, CFM International’s LEAP engines require modifications to enhance performance under hot and dusty conditions. Rolls-Royce’s Trent XWB-97 has faced criticism due to its frequent inspection intervals, potentially affecting Airbus A350 operations, as it is the aircraft's sole engine option.

Despite these challenges, the long-term outlook remains positive.

Commercial Fleet Forecast

GE generates most of its profits through engine maintenance rather than sales, making fleet size a critical factor. A larger fleet translates to increased profits.

The aviation industry suffered significantly from the pandemic, impacting airlines and manufacturers financially. While trends have shifted, recovery is expected over the coming years.

Key factors for GE’s profits include:

• Fleet Growth: A larger fleet implies a higher installed base of GE engines, determined by new deliveries and retirements.

• New Deliveries: Newer engines, being larger, generally require more maintenance.

Available reports:

McKinsey & Co - Why aftermarket and service are vital to OEMs—and how to excel

McKinsey & Co - What does the future hold for commercial-aviation maintenance?

Oliver Wyman - Global Fleet And MRO Market Forecast 2025-2035

Boeing - Commercial Market Outlook 2024–2043

Airbus - 2024 Global Market Forecast

Projected Fleet Growth

Publicly available forecasts:

• Oliver Wyman: +2.5%

• Fleet MRO: +3.1%

• McKinsey: +3.4%

Annual fleet growth is anticipated at approximately 3-4% over the next decade.

Deliveries and Retirements

Annual aircraft production and deliveries exceed 2,000, representing about 6-7% annual growth, primarily narrowbody aircraft.

Annually, around 700 aircraft retire (approximately 2% of the fleet), mostly narrowbody. This results in about 1,300 net new aircraft annually, or approximately 2,600 engines, indicating 3-4% fleet growth each year.

Given its dominance in narrowbody aircraft, GE is expected to capture at least half of this market.

GE might capture at least half of the market, with its dominant position in the narrowbody.

The MRO market

Engine maintenance constitutes half of maintenance, repair, and overhaul (MRO) expenditures. McKinsey forecasts a 0.6% annual growth rate, excluding inflation, over the next decade.

However, actual long-term growth may exceed this due to:

• Fleet expansion at 3-4% annually, increasing the installed engine base.

• Higher maintenance costs of next-generation, larger engines.

• Inflation rates around 2-3%.

GE participates in four of the top five platforms projected for highest MRO spending, including the A320neo and B737 MAX.

Read more

Disclaimer. Please read full disclaimer at the end of the page before reading the report. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The valuations and analyses presented here are based on publicly available information and our interpretation of such data. By reading this blog, you agree to release us from any liability

Dear reader,

A year ago I published my investment thesis about Watches Of Switzerland Group. During January 2025 I updated the analysis and today I bring the latest part: Rolex and the Swiss Watch Industry.

In case you missed the initial write-ups:

In this part III, we will cover the luxury watches industry. From what makes a mechanical watch desirable, to why Rolex is the most iconic brand.

Index

• Part I: The Swiss Watch Industry

• Part II: The Future of The Industry

• Part III: Rolex

• Appendix

Part I: The Swiss Watch Industry

Origins and Early Development

The Swiss watch and clock industry originated in Geneva in the mid-16th century, gradually expanding throughout the Jura Mountains of Switzerland. For centuries, Switzerland's industry primarily focused on clocks and subsequently pocket watches, gaining a very strong reputation for its high quality products.

Emergence of the Wristwatch

Cartier was among the first companies to introduce wristwatches at the beginning of the 20th century. However, wristwatches only gained widespread popularity after World War I.

Prior to the 1920s, wristwatches were uncommon, with most individuals preferring pocket watches. Early innovators, including Rolex and Cartier, pioneered the development of wristwatches despite significant challenges:

• Manufacturers needed to ensure precision despite the considerably smaller size of wristwatches.

• Wristwatches were vulnerable to environmental factors like dust and humidity.

These issues make complex to built a reliable wristwatch in a time with no smartphones and watches everywhere.

Post-WWI Growth

After WWI, Rolex and other Swiss brands began to innovate and create watches that were precise and reliable. During the following decades, these companies introduced the features known today: sealed, and automatic watches.

During the WWII, Swiss brands manufactured watches for the different armies. It was a more technological war than WWI that required much more precision. Rolex, for example, was a key supplier to the British Royal Air Force.

During the decades of the 1950s and 1960s, there were many innovations in the mechanical wristwatches making them very reliable watches. Because Switzerland remained neutral during the WWII, they were able to introduce themselves in the major market: the United States.

Brands like Rolex and Omega had a lot of success after the war. Rolex was sending watches to the U.S. presidents, Omega supplying NASA astronauts, etc.

It were buoyant decades for the Swiss watch industry, until the late 1950s, early 1960s, where a new revolutionary system was introduced: the quartz watch.

Quartz Revolution and Crisis

In the late 1950s and early 1960s, the advent of quartz technology significantly transformed the industry. Quartz watches, powered by battery-operated quartz crystals, offered unprecedented accuracy, dramatically reshaping market dynamics:

• Mass production techniques made quartz watches affordable, attracting numerous competitors.

• By 1978, quartz technology dominated, severely impacting the Swiss mechanical watch industry and leading to widespread bankruptcies and market exits.

• Hong Kong emerged as a major exporter of electronic watches.

The system, compared to automatic watches, is significantly less complex, allowing for mass production and lower expenses. New watches will be significantly cheaper, and even more precise.

Response and Revival

Same as with other revolutions, as this new technology advanced and mass production techniques were developed in the 1970s and 1980s, watches became much cheaper and easier to manufacture, attracting a huge number of new players.

By 1978, quartz watches overtook the Swiss mechanical watches, plunging the Swiss watch industry into the “quartz crisis”. As a result, many famous Swiss watch house disappeared. In the decade of the 1970s, and beginning of 1980s, the number of Swiss watchmakers dropped from 1,600 to 600.2

Outside Switzerland, the history repeated: this new industry attracted a huge number of players, especially in the U.S., where the vast majority of firms went bankrupt and Hong Kong became the largest exported of electronic watches.

The crisis defined the Swiss industry of today:

• Rolex decided not to move to quartz watches. Maybe because they are led by a foundation, they were not interested to rush into the new technology and decided to continue manufacturing their mechanical watches.

• Other brands like Omega tried to enter the market, becoming a big failure and loosing its dominant position in the market.

• In order to survive, the two biggest Swiss watch groups decided to merge in 1983 to create The Swatch Group. This movement will allow the Swiss watch industry to revive and today, the Swatch Group is the largest manufacturer in the world.

• The high-end watches became highly valued by auction houses. Watches like the Daytona wear by Paul Newman was sold by $17.8 million. This will revive the industry too, as people identified strong value in these timepieces.

The emergence of the Apple Watch

Prior to the launch of the Apple Watch, there were only specialized fitness watches, mainly designed for runners and triathletes.

Apple created a new market that will compete directly with traditional wristwatches: the smartwatch.

Although by that time the utility of a watch was already close to zero, watches were part of someone’s outfit. Now, smartwatches track our sleep, calories burn, and make us 100% connected to notifications.

Because we only use one wrist for a watch, smartwatches have displaced cheaper or premium watches. This has significantly affected the low price and premium brands.

Since the launch of the Apple Watch in 2015 and the emergence of smartwatches:

• Luxury watches (above CHF 3,000) have increased from 1.6 million units in 2015 to 2.0 million units in 2024

• Exports of watches with pricing below CHF 500 have decreased by more than 50% since 2015

• Premium watches (between CHF 500 to 3,000) have decreased by 25% since 2015

Companies like Swatch Group have seen their revenues decrease since 2015, despite owning the Omega brand (top 3 brand in the Swiss watch industry).

Watches of Switzerland sells mainly watches of the CHF 3,000+ category, and some between CHF 500 to 3,000, being Rolex, Patek and Audemars the main brands sold in their stores.

Although the smartwatch can’t be seen as a direct competitor to Rolex, smartwatches compete with watches for a place in our wrist. The low-end brands like Tissot, Longines or Tag Heuer are probably suffering the most. For similar price range, if consumers need to decide between mechanical watch and smartwatch, the answer is simple: functionality will be preferred, as these watches do not provide any status.

For the true luxury brands, a smartwatch is not a direct competitor in the majority of the cases, and since the introduction of Apple Watch, the high-end industry has only increased its popularity and desire.

Probably, the Apple Watch introduced to many people the habit to wear a watch, which ultimately benefit companies like Rolex, as many people will understand its power, and will move from a notification/sport monitoring watch, to a timepiece that elevates the person.

Figures of the Industry

Currently, the top 50 Swiss watch brands produce over 15 million watches annually, achieving a wholesale market value surpassing CHF 30 billion (~€33 billion).

Luxury brands like Rolex, Patek Philippe, and Audemars Piguet focus exclusively on limited-production mechanical watches, consistently raising their prices, and limiting the supply of its products (i.e., they never match supply to demand).

Despite the competition posed by smartwatches, the luxury segment remains robust. Swiss watch exports are c.20% higher than 2015, with a positive trend since the pandemic.

By region, the U.S. remains as the largest market, representing 17% of total exports, while Asian countries China, Japan, Hong Kong, and Singapore represent ~30% of total exports.

Market Participants

The Swiss watch industry features a diverse landscape of brands in both mechanical and quartz categories:

• Independent Brands: Rolex, Patek Philippe, and Audemars Piguet remain influential, independently-operated brands.

• Luxury Conglomerates:

  • Swatch Group: Largest watch manufacturer globally.

  • Richemont: Owner of luxury brand Cartier.

  • LVMH: Major brands include Hublot and premium brand TAG Heuer.

Morgan Stanley estimates Rolex as the largest industry player, accounting for approximately one-third of total industry revenue. The top brands by unit sales and revenue are Rolex, Cartier, Omega, Patek Philippe, and Audemars Piguet.

According to Morgan Stanley, Rolex has a market share of 30%. They are the absolute leaders of the market, followed by Cartier and Omega. They are 3x bigger than the second market participant.

Watches of Switzerland Group (WOSG)

WOSG maintains a strong market position, especially in the U.K. and the U.S., representing key brands such as Rolex and Patek Philippe.

After the introduction of the Rolex CPO program, the share of Rolex is expected to remain very high.

According to Morgan Stanley, the share of wholesale for these three brands is 100%, 85%, and 12%, of total sales, respectively (i.e., Rolex sells 100% through retailers, and Patek 85%, while AP only 15%).

As of today, WOSG is very well positioned selling the top brands in the U.S. (the largest country, representing ~17% of total exports, twice the amount to China).

The data from the Federation of the Swiss Watch Industry FH provides important takeaways for WOSG investors:

• The U.S. plus the U.K. are larger than the sum of China, Japan, and Hong Kong.

• These two regions remained resilient in the past two years, while exports to China have fell by 25% during 2024.

Growth in the U.S. remains very strong, while the U.K. has been more affected by recent macroeconomic environment.

• The exports of Swiss watches to the U.S. have increased by +12.4% since 2022.

• In the U.K., exports of Swiss watches have increased by +5.9% since 2022. Although 2024 was seen as a bad year, the value of the exports only fell by -1.6%, as Swiss companies are able to offset lower volumes with price increases.

However, it makes no sense to measure the performance of the sector in one year. Luxury brands think in the next decades, not the next quarters. The positioning of the brand and desirability of the product is what will guide the profits in the future.

Looking at long-term trends:

• The value of Swiss watch exports to the U.S. has multiplied by 2.4x since the 2000s.

• In the U.K., the value has multiplied by 4x since the 2000s.

Please note these are aggregated data that includes the whole spectrum of Swiss watches, from low price quartz to high-end mechanical watches. Some segments like the low-end/premium have been impacted by the appearance of smartwatches, affecting the figures.

Brands like Rolex have significantly outperformed the market, as they are focused in a luxury product which price has exponentially increased in the last decades. Although the market is focused on the recent price declines of the secondary market, Rolex watches already saw significant price increases prior to pandemic.

Here are some examples of the value of different Rolex watches:

Part II: The Future of The Industry

Read more

Read more

Read more

Read more

Disclaimer. Please read full disclaimer at the end of the page before reading the report. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

Read more

Disclaimer. Please read full disclaimer at the end of the page before reading the report. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

Read more

Disclaimer. Please read full disclaimer at the end of the page before reading the report. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

Read more

Disclaimer. Please read full disclaimer at the end of the page before reading the report. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

Read more