Business Breakdowns
Moody’s: Aaa Business Model - [Business Breakdowns, EP.142]
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Quick takeaways
- Moody's Corporation is a credit rating agency that controls 95% of the global credit ratings market and has a strong financial profile with high profitability and low capital requirements.
- Moody's has two main business segments: Moody's Investor Services, which rates the riskiness of debt for corporations, governments, and banks, and Moody's Analytics, which provides analytical support and software. The combination of these segments creates a resilient business model with both cyclical and non-cyclical revenue streams.
Deep dives
Overview of Moody's Corporation
Moody's Corporation, founded in 1909 by John Moody, is a credit rating agency that rates the riskiness of debt for corporations, governments, and banks. It is one of three dominant credit agencies alongside S&P Global and Fitch, controlling 95% of the global credit ratings market. Moody's has a diversified business model, with its main segments being Moody's Investor Services (ratings business) and Moody's Analytics (providing analytical support and software). Moody's generates around $6 billion in revenue with approximately 50% margins. It also has a global network effect, acting as a trusted global language for bond ratings, and benefits from high switching costs and a loyal customer base. The company has a strong financial profile, with high profitability, low capital requirements, and high free cash flow conversion. Moody's also possesses competitive advantages such as market dominance, untapped pricing power, and a robust toll collector business model. Despite the scrutiny and criticism from the 2008 financial crisis, Moody's has maintained its dominance and continues to be a valuable and resilient business.
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