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Revenue Diversification Aids Moody's Despite Rising Expenses
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Key Takeaways
MCO's top line is supported by analytics growth, acquisitions and strength in bond issuance volumes.
Strategic buys like CAPE, Praedicat, and GCR boost diversification and expand global market reach.
Elevated expenses from investments, inflation and compliance are expected to pressure profitability.
Moody's Corporation’s (MCO - Free Report) dominant position in the credit rating industry, its revenue diversification efforts and strategic acquisitions will likely continue to support top-line expansion. However, elevated operating expenses resulting from investments in franchise is expected to hurt profitability to some extent.
MCO’s Key Growth Drivers
Revenue Diversification Efforts: Moody’s pursues growth in areas outside the core credit ratings service. In January 2025, MCO bought CAPE Analytics. In September 2024, it acquired Praedicat to enhance its insurance solutions and strengthen its risk-assessment strategy. Moody’s has increased its exposure to the banking industry, and is diversifying into fast-growing professional services and ERS businesses.
The rising share of its analytics business, which is not correlated with the volatility of interest rates, has added stability to top-line growth. Though MCO’s revenues declined in 2022 because of weakness in bond issuance volumes, the metric witnessed a five-year (2019-2024) compound annual growth rate (CAGR) of 8%, with the uptrend continuing in the first quarter of 2025.
Revenue Growth
Image Source: Zacks Investment Research
In December 2024, Moody’s approved a Strategic and Operational Efficiency Restructuring Program aimed at improving efficiency and focusing on growth areas. The initiative is projected to strengthen operating margins and support strategic investments, with substantial completion by the end of 2026 and related cash outlays continuing through 2027.
Given the improved mix, the low-risk nature of its product portfolio and the pick-up in bond issuance volumes, MCO’s top-line growth is expected to continue.
Strategic Acquisitions: Moody’s has been growing through acquisitions, increasing scale and cross-selling opportunities across products and vertical markets. In 2024, it announced the acquisition of Numerated Growth Technologies and a 100% stake in GCR to deepen its presence in Africa’s domestic credit market. In 2023, it acquired SCRiesgo, which bolstered its presence in Central America and the Dominican Republic.
These deals, along with several other strategic buyouts, will likely continue helping the company diversify revenues and be accretive to earnings.
Robust Balance Sheet Position: Moody’s has a robust balance sheet. As of March 31, 2025, it had total debt worth $6.8 billion, an undrawn revolving credit facility of $1.25 billion, and cash and cash equivalents and short-term investments of $2.2 billion. The company does not have any significant debt maturities in the near term.
Moreover, driven by its earnings strength and a strong balance sheet, Moody's is expected to sustain efficient capital distributions. In February 2025, the company announced an 11% hike in its quarterly dividend to 94 cents per share.
After suspending share repurchases in March 2020 to conserve liquidity amid the coronavirus-induced uncertainty, MCO resumed the same in the fourth quarter of 2020. As of March 31, 2025, the company had $1.2 billion worth of shares available, with no expiration date. For 2025, MCO plans to buy back at least $1.3 billion worth of shares.
Near-Term Headwinds for Moody’s
Rising Expense Base: MCO has been witnessing a persistent rise in expenses. Operating expenses witnessed a five-year (2019-2024) CAGR of 7.6% due to an increase in selling, general and administrative costs. The uptrend in costs persisted in the first quarter of 2025.
Expense Growth
Image Source: Zacks Investment Research
Overall costs are expected to remain elevated, given the company’s continued investments in franchises, inorganic expansion efforts and inflationary pressures. Further, credit-rating agencies, including Moody’s, have been subject to increased regulatory scrutiny since the 2008 financial crisis. These result in an increase in costs related to compliance and governance, thus leading to a further rise in total expenses.
Stiff Competition: Moody’s faces stiff competition in most of the markets in which it operates. In the credit rating sector, the company faces competition from Fitch, S&P Global Ratings, Morningstar and many other regional providers.
In the analytics segment, it faces competition from Dun & Bradstreet, Bloomberg, IBM, Fiserv and others. In the risk management software market, the company competes with large software developers, including SAS, Oracle, IBM and Mysis. Intense competition will likely put pressure on pricing, which may hurt profitability.
MCO’s Price Performance & Zacks Rank
So far this year, shares of Moody’s have gained 0.6% against the industry’s decline of 3.7%.
Estimates for AX’s current fiscal-year earnings have been revised 2.2% upward in the past 60 days. The company’s shares have gained 36.6% in the past 12 months.
Estimates for VIRT’s current-year earnings have been revised 8.7% north in the past 60 days. The company’s shares have surged 84% in the past year.
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Revenue Diversification Aids Moody's Despite Rising Expenses
Key Takeaways
Moody's Corporation’s (MCO - Free Report) dominant position in the credit rating industry, its revenue diversification efforts and strategic acquisitions will likely continue to support top-line expansion. However, elevated operating expenses resulting from investments in franchise is expected to hurt profitability to some extent.
MCO’s Key Growth Drivers
Revenue Diversification Efforts: Moody’s pursues growth in areas outside the core credit ratings service. In January 2025, MCO bought CAPE Analytics. In September 2024, it acquired Praedicat to enhance its insurance solutions and strengthen its risk-assessment strategy. Moody’s has increased its exposure to the banking industry, and is diversifying into fast-growing professional services and ERS businesses.
The rising share of its analytics business, which is not correlated with the volatility of interest rates, has added stability to top-line growth. Though MCO’s revenues declined in 2022 because of weakness in bond issuance volumes, the metric witnessed a five-year (2019-2024) compound annual growth rate (CAGR) of 8%, with the uptrend continuing in the first quarter of 2025.
Revenue Growth
Image Source: Zacks Investment Research
In December 2024, Moody’s approved a Strategic and Operational Efficiency Restructuring Program aimed at improving efficiency and focusing on growth areas. The initiative is projected to strengthen operating margins and support strategic investments, with substantial completion by the end of 2026 and related cash outlays continuing through 2027.
Given the improved mix, the low-risk nature of its product portfolio and the pick-up in bond issuance volumes, MCO’s top-line growth is expected to continue.
Strategic Acquisitions: Moody’s has been growing through acquisitions, increasing scale and cross-selling opportunities across products and vertical markets. In 2024, it announced the acquisition of Numerated Growth Technologies and a 100% stake in GCR to deepen its presence in Africa’s domestic credit market. In 2023, it acquired SCRiesgo, which bolstered its presence in Central America and the Dominican Republic.
These deals, along with several other strategic buyouts, will likely continue helping the company diversify revenues and be accretive to earnings.
Robust Balance Sheet Position: Moody’s has a robust balance sheet. As of March 31, 2025, it had total debt worth $6.8 billion, an undrawn revolving credit facility of $1.25 billion, and cash and cash equivalents and short-term investments of $2.2 billion. The company does not have any significant debt maturities in the near term.
Moreover, driven by its earnings strength and a strong balance sheet, Moody's is expected to sustain efficient capital distributions. In February 2025, the company announced an 11% hike in its quarterly dividend to 94 cents per share.
After suspending share repurchases in March 2020 to conserve liquidity amid the coronavirus-induced uncertainty, MCO resumed the same in the fourth quarter of 2020. As of March 31, 2025, the company had $1.2 billion worth of shares available, with no expiration date. For 2025, MCO plans to buy back at least $1.3 billion worth of shares.
Near-Term Headwinds for Moody’s
Rising Expense Base: MCO has been witnessing a persistent rise in expenses. Operating expenses witnessed a five-year (2019-2024) CAGR of 7.6% due to an increase in selling, general and administrative costs. The uptrend in costs persisted in the first quarter of 2025.
Expense Growth
Image Source: Zacks Investment Research
Overall costs are expected to remain elevated, given the company’s continued investments in franchises, inorganic expansion efforts and inflationary pressures. Further, credit-rating agencies, including Moody’s, have been subject to increased regulatory scrutiny since the 2008 financial crisis. These result in an increase in costs related to compliance and governance, thus leading to a further rise in total expenses.
Stiff Competition: Moody’s faces stiff competition in most of the markets in which it operates. In the credit rating sector, the company faces competition from Fitch, S&P Global Ratings, Morningstar and many other regional providers.
In the analytics segment, it faces competition from Dun & Bradstreet, Bloomberg, IBM, Fiserv and others. In the risk management software market, the company competes with large software developers, including SAS, Oracle, IBM and Mysis. Intense competition will likely put pressure on pricing, which may hurt profitability.
MCO’s Price Performance & Zacks Rank
So far this year, shares of Moody’s have gained 0.6% against the industry’s decline of 3.7%.
Image Source: Zacks Investment Research
MCO currently carries a Zacks Rank #3 (Hold).
Moody’s Peers Worth a Look
Some better-ranked peers of MCO are Axos Financial, Inc. (AX - Free Report) and Virtu Financial, Inc. (VIRT - Free Report) . Both Ax and VIRT currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Estimates for AX’s current fiscal-year earnings have been revised 2.2% upward in the past 60 days. The company’s shares have gained 36.6% in the past 12 months.
Estimates for VIRT’s current-year earnings have been revised 8.7% north in the past 60 days. The company’s shares have surged 84% in the past year.