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Here’s Why Fair Isaac Stock Plunged on Thursday

What happened

The stock market suffered its worst one-day loss since 1987 on Thursday, March 12. Both the Dow Jones Industrial Average and S&P 500 benchmark indexes fell by nearly 10%.

The financial sector has been one of the worst-performing parts of the stock market in the downturn, and this isn't limited to just banks and insurance companies; financial service businesses are feeling the pressure, too. Fair Isaac Corporation (NYSE: FICO) is one example, down 11.3% for the day on Thursday and more than 36% from its highs reached less than a month ago.

Image source: Getty Images.

So what

Consider how Fair Isaac makes its money. The company is best known for its FICO credit scoring model, and some of its revenue comes from subscription-based sources. For example, I pay a monthly fee for the company's myFICO credit monitoring service.

But some revenue is directly tied to consumer spending. As one example, the company gets paid every time a lender checks someone's credit using its platform (which is used in most lending decisions). If consumers are taking out fewer loans, Fair Isaac makes less money. So it shouldn't be a big surprise to see the stock take a hit.

Now what

It remains to be seen whether this will be a short-lived market crash, or if we're entering the early stages of a deeper recession and bear market. Whatever the case, investors certainly are right to be concerned about the company's revenue taking a short-term hit, and that's what we're seeing reflected in the stock price.

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Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fair Isaac. The Motley Fool has a disclosure policy.


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