Moody’s: Aaa Business Model - [Business Breakdowns, EP.142]

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Dec 27, 2023

In this discussion, Brian Yacktman, Founder and President of YCG Investments, shares expert insights on Moody’s Corporation, established in 1909 to democratize credit information. He unpacks the evolution of Moody’s, emphasizing its crucial role in reducing borrowing costs and its high-margin business model. The conversation touches on the impact of the financial crisis, comparing Moody’s to S&P Global and the agency's resilience to regulatory challenges. Yacktman also highlights how economic cycles and AI innovations are influencing the credit rating landscape.

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ANECDOTE

Moody's Origin

John Moody's initial data venture failed during the 1907 crisis.
He succeeded by focusing on railroad bonds during the subsequent boom, leading to Moody's.

INSIGHT

Protocol Network Effect

Moody's and S&P dominate the credit rating market due to a protocol network effect, similar to major languages.
This makes disrupting them extremely difficult, as seen by failed government attempts.

INSIGHT

Global vs. Local Network Effects

Moody's global network effect surpasses local ones like credit bureaus, making it more resilient.
An Indian company benefits more from a Moody's rating than a local one for global investors.

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This is Zack Fuss. Today we are breaking down Moody's Corporation. Moody's was founded by John Moody in 1909 with the idea of broadening access to credit information and codifying how people viewed credit statistics by producing manuals of stats related to bonds. In 2000, Moody's was spun off from Dun & Bradstreet as a separately traded public company. Today, it is nearly a $75 billion enterprise business, producing approximately $6 billion in revenue at 45 percent margins.

To break down Moody's, I'm joined by Brian Yacktman, the Founder and President of YCG Investments. During this conversation we explore the business's origin story, how the financial crisis impacted the trajectory of the business, and the role that credit ratings play in the broader investment ecosystem. Please enjoy this breakdown on Moody's.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

(00:02:30) - (First question) - Introducing Moody's and its operations

(00:05:13) - Analyzing Moody’s revenue structure

(00:06:13) - Highlighting Moody's business strengths

(00:07:40) - Discussing Moody’s business model transformation

(00:12:29) - Evaluating entry barriers in Moody’s field

(00:17:06) - Exploring the network effects within the company

(00:23:01) - Examining Moody’s profit margins

(00:26:26) - Comparing Moody’s to S&P Global

(00:28:08) - The impact of the financial crisis on Moody's

(00:29:46) - Assessing economic sensitivities affecting Moody's

(00:35:25) - Key takeaways from Moody’s business strategies