Fair Isaac’s Q2 Earnings Show Resilience Amid Growth Challenges: Is the Stock Worth a Look?

Fair Isaac Corporation (FICO) delivered mixed results in its fiscal Q2 2025 earnings report, balancing strong earnings growth with a slight revenue shortfall. While the company reaffirmed its full-year guidance, investors reacted cautiously, sending shares down 4.8% in after-hours trading. Let’s dissect the numbers to determine whether FICO’s stock remains a compelling investment opportunity.

Revenue Growth, But Not Without Hurdles

Total revenue for the quarter reached $498.74 million, a robust 15% year-over-year increase, driven largely by its Scores segment, which saw a 25% jump to $297 million. This segment benefited from surging mortgage origination activity—up 48%—as lenders leaned on FICO’s credit scoring tools amid tighter underwriting standards. B2C revenue also rose 6% through partnerships with indirect channels.

However, the Software segment, which includes analytics platforms and decision-making tools, grew only 2% to $201.7 million. Professional services revenue fell 9% year-over-year, though management expects a rebound in Q3. The segment’s annual recurring revenue (ARR) rose 3%, with platform ARR up 17%—a positive sign for FICO’s “land and expand” strategy.

The slight miss on revenue estimates ($499.58 million consensus vs. $498.74 million actual) weighed on sentiment, as did the stockholders’ deficit of $1.12 billion on FICO’s balance sheet.

Earnings Beat and Cash Flow Strength

Despite the revenue shortfall, FICO’s non-GAAP diluted EPS of $7.81 outperformed estimates by $0.41, fueled by cost discipline and margin expansion. Operating cash flow rose to $74.9 million, while free cash flow hit $65.5 million, reflecting strong liquidity. Over the trailing twelve months, free cash flow jumped 45% to $677 million, underscoring FICO’s financial resilience.

Guidance Reaffirmed Amid Macro Risks

FICO maintained its full-year 2025 outlook, projecting $1.98 billion in revenue and $28.58 in non-GAAP EPS. Management cited confidence in its FICO Score 10T adoption—now used by clients with $284 billion in annual mortgage originations—and partnerships like its collaboration with Fujitsu to expand into Japanese financial markets.

Yet risks persist. Customer Communication Services (CCS) usage dipped due to macroeconomic uncertainty, and mortgage origination volumes could face headwinds if interest rates rise further. CEO Will Lansing noted, “We’re navigating a cautious environment but remain focused on innovation.”

Stock Performance and Analyst Views

FICO’s shares fell 4.8% after-hours to $1,867.01, erasing year-to-date gains of 2.4%. Analysts remain divided:

• Bullish Case: A $2,096.84 average price target (6.9% upside) reflects optimism about FICO’s dominance in credit scoring (used by 90% of top U.S. lenders) and its expanding Software ARR.
• Bearish Concerns: GuruFocus’ $1,307.14 one-year valuation highlights worries about overvaluation, given FICO’s trailing P/E of 73x, well above its 5-year average of 45x.

The Zacks Rank #3 (Hold) underscores mixed near-term earnings revisions, though FICO’s industry peers—like Endava (DAVA)—are also grappling with macro pressures.

Conclusion: A Hold with Upside Potential

FICO’s Q2 results reveal a company thriving in its core Scores business but facing execution risks in software. The reaffirmed guidance and strong cash flow suggest underlying strength, while the revenue miss and valuation concerns temper enthusiasm.

Investors should focus on Software segment recovery and platform ARR growth in upcoming quarters. With $284 billion in mortgage originations tied to FICO Score 10T and a 110% net retention rate for platform software, FICO’s long-term moat remains intact.

However, at current prices, the stock’s premium valuation demands patience. A Hold rating seems prudent, with a buy case emerging if software growth accelerates or macro fears subside. For now, FICO is a story of resilience—but not yet runaway momentum.

Final Take: FICO’s Q2 results highlight its defensive strengths but leave room for skepticism. Monitor Q3 Software performance and macro trends before taking a position.