Summary
- Verisk Analytics is a leading data analytics provider serving customers in the insurance, energy and specialized markets, and financial services industries.
- Verisk nearly enjoys a monopoly in the data analytics for P/C insurers. It has expanded into energy and specialized markets and financial services industries, which share the same business model.
- Its operating model is characterized by recurring revenue, scalable solutions, and low capital intensity.
- Its courtroom loss to Eagle View Technologies, along with the $125 million penalties, does not impact its sustainable competitive advantage.
- That makes the sharp decline of the share price a potential entry opportunity.
- This idea was discussed in more depth with members of my private investing community, The Natural Resources Hub. Get started today »
Verisk Analytics (VRSK) stock went into a parabolic fall following the jury verdict in the U.S. District Court for the District of New Jersey on September 25, 2019. The verdict states that Verisk and its Xactware Solutions subsidiary infringed the proprietary intellectual property of Eagle View Technologies, a provider of aerial imagery and data analytics. The jury awarded Eagle View $125 million in damages. The Court has also issued a temporary restraining order stopping, among other things, Verisk's sale of Property InSight, Roof InSight, Geomni Roof, and Geomni Property, as well as its sale or use of Aerial Sketch version 2, after September 25, 2019, and until October 8, 2019, when the Court will hold a hearing on a permanent injunction (see here). Since the newsbreak, the share price of Verisk has dropped by some 13%.
Such a steep share price decline may provide a rare entry opportunity into this company. However, before rushing to buy the dip, it is prudent to assess whether the courtroom setback has permanently damaged the core competency of the company. To that end, in this article, I provide an overview of its business model and competitive advantage, hoping to lay a foundation for an in-depth survey.
Business model
Verisk is a leading data analytics provider serving customers in the insurance, energy and specialized markets, and financial services industries (Fig. 1). Verisk reports in three segments, insurance, energy and specialized markets, and financial services, which contributed 71.8%, 21.4%, and 6.8% of the revenue as of the quarter ended June 30, 2019, respectively (see here).
Fig. 1. Business domains served by Verisk. Source.
- Verisk's root dates back to 1971 when Insurance Services Office (or ISO) was created as a not-for-profit advisory and rating organization through the consolidation of various state, regional, and national property/casualty (aka, P/C or PC) insurance rating bureaus.
- After having been run as an insurance industry co-op for 27 years, and as an insurer majority-owned, not-for-profit private entity for 11 years, Verisk went public in 2009. It is now a member of the S&P 500 and Nasdaq-100 indices.
History of acquisitions. Since 2000, the company has acquired dozens of new businesses, consolidating data analytics in the insurance, energy and specialized markets, and financial services industries. Through acquisitions, it became the largest data and analytics solutions provider to the U.S. P/C insurance industry, and a specialist in offering solutions for fraud detection in healthcare, mortgage, and supply chain industries, and for loss quantification and prediction in diverse contexts ranging from catastrophes to health insurance. Since 2012, it expanded into the financial services and natural resources verticals while retaining its core distinctions. Notable transactions include the acquisition of Argus Information & Advisory Services in 2012, Maplecroft in 2014, and Wood Mackenzie, in 2015.
