TransUnion's Credit Bureau Business Gives It a Wide Moat

Equity Analyst

Rajiv Bhatia

Along with Equifax and Experian, TransUnion is one the Big Three consumer credit bureaus. Given the fixed costs inherent in a data-intensive business, TransUnion has been able to generate meaningful margin expansion over the past several years. 

TransUnion's core business is selling credit reports to U.S. lenders, but as this business is the most mature, the company has sought other avenues of growth. One avenue has been expanding beyond financial institutions into verticals such as insurance, rental screening, collections, and other sectors. The emerging verticals business was 32% of the firm's revenue in 2020, up from 21% of revenue in 2009. We believe this will help TransUnion weather a downturn as this revenue is diversified across industries and less macro-sensitive, though these items may be sensitive to coronavirus-related disruptions. TransUnion has sought to replicate its U.S. playbook internationally, as well. The most intriguing opportunity is in India, which, given the country's large population, could be an evergreen source of growth for the firm. TransUnion's early entry has allowed it to build a commanding market share in this country. While it will probably take many years to fully realize this market's potential, we think the company's leading position provides meaningful long-term upside.

Since its public debut in 2015, TransUnion’s acquisition strategy has run the gamut from smaller bolt-on deals to larger acquisitions. Examples of bolt-on deals include Tru Optik and Signal Digital, which provide data and analytics for digital marketing. TransUnion's larger deals include its $1.4 billion acquisition of U.K. credit bureau Callcredit in 2018, its $3.1 billion acquisition of Neustar in 2021, and its $638 million of Sontiq in 2021. We believe TransUnion’s acquisitions have generally made strategic sense and have not weakened the firm’s moat.

Business Strategy & Outlook

TransUnion’s data is critical to the underwriting decisions of its customers (often banks), and the price of its services is negligible relative to the loan amounts at risk. We estimate that North American credit bureaus’ revenue represents about 1-2 basis points of total household debt. Because the accuracy and completeness of data is critical to credit decisions, lenders often pull from more than one credit bureau and we do not believe pricing is the primary factor for choosing a credit bureau. 

We believe the barriers to entering the credit bureau business are high, as replicating a database of millions of customers would be incredibly difficult. As the credit bureaus’ data is based on the voluntary reporting of thousands of financial institutions, it’s unlikely that a startup credit bureau, particularly with heightened data security concerns, could convince banks to share consumer information. 

TransUnion’s U.S. business (roughly 65% of the firm’s revenue) is split roughly evenly between traditional financial services (mortgage, auto, credit cards, and so on) and emerging verticals (insurance and other industries). Mortgage-related revenue makes up less than 10% of the firm’s revenue. Government agencies (Fannie and Freddie) currently require a credit report from all three bureaus, known as a “tri-merge” report. Given that the bulk of mortgages are agency compliant, using TransUnion (along with Equifax and Experian) is essentially a requirement for a mortgage lender. However, in October 2022, the Federal Housing Administration announced that it will work toward moving from a “tri-merge” to a “bi-merge” which would only require two credit bureau pulls. The timeline for this change is unclear. Outside of mortgage, TransUnion’s credit reports are deeply entrenched in auto lenders’ and credit card issuers’ workflows.

The 20% of firmwide revenue that TransUnion generates outside the United States tends to be at similar adjusted EBITDA margins as the firm overall. TransUnion’s non-U.S. business is well diversified across geographies, with the U.K. representing about one quarter of international revenue. Canada, Latin America, and India each represent about 15%-25% of international revenue, and the remaining revenue is split between Africa and Asia-Pacific. Through its stake in CIBIL, TransUnion has a leading position in India, which we believe is one of the company’s largest long-term opportunities. 

TransUnion generates roughly 15% of its revenue from its consumer interactive segment. It takes a two-prong approach, selling directly to consumers (direct channel) as well as through third-party partners such as Credit Karma (indirect). We view this segment as a natural extension of credit bureau operations and an additional path to monetize the moat surrounding legacy operations.

Wide

Economic Moat

TransUnion

TransUnion engages in the provision of information and risk management solutions. It also provides consumer reports, risk scores, analytical services and decision making capabilities to businesses. The firm operates through the following segments: U.S. Markets, International, Consumer Interactive, and Corporate. The U.S. Markets segment provides consumer reports, risk scores, analytical services and decision making capabilities to businesses. The International segment provides credit reports, analytics and decision making services and other value-added risk management services. The Consumer Interactive segment offers solutions that help consumers manage their personal finances and take precautions against identity theft. The Corporate segment provides support services to each segment, holds investments and conducts enterprise functions. The company was founded on February 15, 2012, and is headquartered in Chicago, IL.

Earnings data Q1 2024

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TransUnion engages in the provision of information and risk management solutions. It also provides consumer reports, risk scores, analytical services, and decision-making capabilities to businesses. It operates through the following segments: U.S. Markets, International, Consumer Interactive, and Corporate. The U.S. Markets segment provides consumer reports, risk scores, analytical services, and decision-making capabilities to businesses. The International segment provides credit reports, analytics and decision-making services and other value-added risk management services. The Consumer Interactive segment offers solutions that help consumers manage their personal finances and take precautions against identity theft. The Corporate segment provides support services to each segment, holds investments, and conducts enterprise functions. The company was founded on February 15, 2012, and is headquartered in Chicago, IL.

CHICAGO, June 16, 2023 (GLOBE NEWSWIRE) -- Liz Pagel, senior vice president and consumer lending leader at TransUnion (NYSE: TRU), was recently recognized as a finalist for American Banker's inaugural Most Influential Women in FinTech Award. This newly launched recognition program honors women founders, thought leaders, and innovators in the financial technology community.

American Banker Recognizes TransUnion's Liz Pagel as one of the Most Influential Women in FinTech

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CHICAGO, June 14, 2023 (GLOBE NEWSWIRE) -- TransUnion (NYSE: TRU) announced today a strategic partnership with Truework, a leading provider of verification of income and employment (VOIE) services in the U.S. Truework provides a comprehensive and efficient one-stop platform for VOIE information while also giving consumers greater control of their personal and financial information. This strategic partnership follows a strategic minority investment TransUnion made in Truework earlier this year.

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TORONTO, June 07, 2023 (GLOBE NEWSWIRE) -- TransUnion® (NYSE: TRU) has expanded TruValidate Identity Exchange across industries in Canada to help financial institutions, credit card issuers, fintechs, telecommunications providers and other companies grow their business while combatting fraud with a new patent-pending, multi-layered approach to risk management and identity verification. Combining advanced analytics and machine learning, Identity Exchange is a dynamic solution that proactively assesses identity fraud risk – for example, during an application process when consumers are applying for loans, credit cards or phone contracts – to enable businesses to more confidently approve authentic customers. Early adopters of the solution have benefitted from increased acquisition while preventing fraud.

Canadian Businesses Can Drive Stronger Growth and Reduce Identity Fraud Risks with TruValidate Identity Exchange from TransUnion®

Fintel reports that on June 5, 2023, Goldman Sachs maintained coverage of TransUnion (NYSE:TRU) with a Neutral recommendation.

Goldman Sachs Maintains TransUnion Neutral Recommendation

TransUnion report explores the current state of consumer credit and its impact on credit unions CHICAGO, June 01, 2023 (GLOBE NEWSWIRE) -- The newly released Q2 Credit Union Market Perspectives Report from TransUnion (NYSE: TRU) shows that stubbornly-high inflation continues to put pressure on the monthly budgets of consumers, credit union members among them. This has led to increasing reliance on credit cards and personal loans as borrowers seek ways to make ends meet.

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NEW YORK--(BUSINESS WIRE)--VideoAmp and TransUnion® (NYSE: TRU) have joined forces to release a comprehensive analytics solution for cross-platform media measurement and optimization. Marketers will now have even more accurate visibility into the effectiveness of their linear television advertising by integrating VideoAmp's TV viewership dataset with the TruAudience® marketing analytics and attribution solution. The integration enables marketers to measure the impact of their campaigns across T.

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TORONTO, May 31, 2023 (GLOBE NEWSWIRE) -- TransUnion today released the findings of its Q1 2023 Credit Industry Insights Report (CIIR), which shows that the Canadian credit market remains resilient despite the current high cost of living and elevated interest rates.

Strong Borrowing Activity and Participation Continues in the Canadian Credit Market

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CHICAGO, May 05, 2023 (GLOBE NEWSWIRE) -- TransUnion (NYSE: TRU) today announced that its Board of Directors declared a cash dividend of $0.105 per share for the first quarter 2023. The dividend will be payable on June 2, 2023, to shareholders of record on May 19, 2023.

TransUnion Declares First Quarter 2023 Dividend of $0.105 per Share

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With the transformations of recent years in global industries, TransUnion is currently considered a valuable data manager. I would expect revenue growth from the sale of new products. I would also expect successful positioning in new market possibilities and expansion of services towards marketing fraud management.

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TransUnion (TRU) Q1 2023 Earnings Call Transcript.

TransUnion (TRU) Q1 2023 Earnings Call Transcript

While the top- and bottom-line numbers for TransUnion (TRU) give a sense of how the business performed in the quarter ended March 2023, it could be worth looking at how some of its key metrics compare to Wall Street estimates and year-ago values.

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TransUnion (TRU) came out with quarterly earnings of $0.80 per share, beating the Zacks Consensus Estimate of $0.74 per share. This compares to earnings of $0.93 per share a year ago.

TransUnion (TRU) Q1 Earnings and Revenues Beat Estimates

Exceeded first quarter 2023 financial guidance Grew revenues by 2 percent driven by strength in International Drove meaningful progress in Neustar integration, including strong cross-sell wins and data integration milestones Prepaid $75 million in debt in the quarter and intend to make further prepayments in the second quarter and throughout the year Maintaining 2023 full-year guidance to account for continued market uncertainty CHICAGO, April 25, 2023 (GLOBE NEWSWIRE) --  TransUnion (NYSE: TRU) (the “Company”) today announced financial results for the quarter ended March 31, 2023. First Quarter 2023 Results Revenue: Total revenue for the quarter was $940 million, an increase of 2 percent (4 percent on a constant currency basis and 2 percent on an organic constant currency basis), compared with the first quarter of 2022.

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News for TransUnion Stock (TRU)