Moody’s Competitive Analysis

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Moody’s Competitive Analysis. As a credit rating firm, Moody operates in two segments namely Moody’s Investors Service (MIS) and Moody’s Analytics (MA). Most of the firm’s earnings, approximately 60%, is generated by MIS, which offers credit ratings and risk reviews on a broad range of products. The other 40% is generated by MA, which is mainly concern with data, research and analytical reports. Moreover, while MA has grown so fast into a $1billion revenue business, MIS remains the leading credit rating firm globally. Moody’s main competitors include Standard & Poor, and Fitch. As the leading rating firms, they account for almost 100% of the revenue accrued from ratings. However, Moody and Standard & Poor’s represent 40% of the share. Since these three credit firms have a national recognition, outside competition is put at bay. Essentially, these firms have a consistent revenue channels and significant pricing power. This is largely because anyone intending to tap into the rating market has to use either of the companies. Apart from stringent regulations and standards that often impede undue competition, their pricing power and market share are congruent factors that enable them to edge their competitors out of the market. Essentially, Moody operates in an oligopolistic market, where more than 50% revenue has been generated by these three leading credit firms in the last 15 years. While the previous financial crisis has dealt a serious blow on the revenue margins to a certain extent, hurting operating and cash flows, nonetheless, the durable competitive edge for Moody and its closest rivals has not changed.  Moody accrues colossal returns on investment, and this is a clear indication of a lucrative business approach employed by the firm.  In addition, the firms lasting competitive edge stems from the fact that it operates with a negative book value, and yet it’s per share earnings have grown at a compounded rate of 15% annually. Again, Moody is able to leverage this annual growth to deliver outstanding shareholder returns.

Moody’s Competitive Analysis