Number crunchers of the financial world: Moody's vs. S&P in a data duel
Company presentation
$SPGI (-1.13%) and $MCO (-1.15%) are the two leading rating agencies worldwide. Both companies assess the creditworthiness of companies, countries and financial products and play a decisive role on the global financial markets. Their ratings and analyses have a significant influence on the investment decisions of investors and the financing conditions of issuers.
Historical development
S&P Global
- Founded in 1860 as Poor's Publishing
- 1941 Merged with Standard Statistics to form Standard & Poor's Corporation
- Acquired by McGraw-Hill in 1966
- Since 2016, the company has operated as S&P Global, offering an expanded range of financial market data, analytics and index solutions
Moody's
- Founded in 1909 by John Moody
- Acquired by Dun & Bradstreet in 1962
- In 2000, the spin-off from Dun & Bradstreet took place and Moody's became an independent, listed company.
Business model and core competencies
- Credit ratings for companies, governments and financial products, including bonds and structured financial products.
- The sale of financial market data and analyses that are of central importance to institutional investors, banks and regulatory authorities.
- Market indices (especially at S&P), such as the world-renowned S&P 500.
Its core competence lies in the assessment of credit risks. Decades of experience, extensive databases and highly qualified analysts make both companies indispensable players on the international financial markets.
Market position and competition
S&P Global and Moody's dominate the global market for credit ratings, together with the third major rating agency, Fitch. These three companies - often referred to as the "Big Three" - control over 90% of the market.
| Aspect | S&P Global | Moody's |
|----------------|-----------------|------------------|
| Market share | approx. 40 % | approx. 35 % |
| Strengths | Leader in market indices (e.g. S&P 500) | Stronger in corporate ratings and structured products |
S&P Global enjoys an advantage through its market indices, which serve as a benchmark for many investment funds and institutional investors.
Moody's, on the other hand, has an advantage in corporate ratings, especially for large, complex financial products.
Future prospects and strategic initiatives
- The expansion of business with financial market data and analyses in order to become less dependent on the pure rating business.
- The use of artificial intelligence (AI) and machine learning to assess credit risks more precisely and efficiently.
- Expansion into emerging markets in order to benefit from the growing financial markets in these regions.
- The development of ESG ratings (environmental, social, governance), as investors are increasingly incorporating sustainable and ethical aspects into their decisions.
Total Addressable Market (TAM)
The global market for credit ratings and financial market data is growing steadily. The increasing complexity of the financial markets and the rising demand for comprehensive credit and ESG ratings are driving this growth. In addition, stricter regulatory requirements mean that more companies and financial products have to be rated. Estimates for the overall market are in the double-digit billion range, which offers plenty of scope for further growth.
Share performance
The shares of S&P Global and Moody's have performed impressively in recent years. Both benefit from stable earnings, high margins and the growing importance of financial market data. Moody TR over 5 years 142% and S&P from 109%
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Conclusion
In a highly regulated market with only three providers and a rising trend, there are basically only winners. Therefore, the long-term trend is less decisive as long as no major screw-ups occur. However, it must be noted that S&P's numbers do not look particularly bright at the moment, especially after a very good period. It remains to be seen, because if the situation continues like this for another two years, it would be anything but positive.
For me, Moody's is a preferred choice because Moody's specializes more in data analytics and other data-driven services. While Moody's returns on capital are not as high as S&P's, they are consistent and achieve high value over the long term. That's probably why Warren Buffett remains invested; after all, you outperform the market over the long term as long as you can crack the 10% mark in returns on capital. This does not mean that S&P is bad. If you can buy both cheaply, you should go for it because the business is highly regulated and extremely interesting.
