The last year has seen Facebook (NASDAQ:FB) and Alphabet’s (NASDAQ:GOOGL) Google come under fire for various transgressions involving sale of private information to businesses. But that cottage industry got its start more than 100 years ago, pioneered by predecessor companies of Equifax (NYSE:EFX).
If you’re scared of Facebook and Google sharing your search history with advertisers, you’re looking in the wrong direction. Equifax is much more dangerous, it remains less secure, and it’s not as good an investment. Over the past 12 months, EFX stock has lost about 1% while the S&P 500 index gained 6.23%.
Equifax was founded in 1899 to pool information on bad debtors so small businesses wouldn’t get burned extending credit to them. That is still its business. It now has a market cap of just over $14 billion, and about $3.4 billion in annual revenue, on which it made about $300 million in net income last year and paid out $1.56 per share in dividends. The shares closed yesterday just below $117.
Hacker Target
This week brought news that Equifax’s credit reports are now going into what the company calls a Data Decision Cloud, to be run in partnership with Fair Isaac (NYSE:FICO) and aimed at helping businesses manage credit risks.
If I were a hacker, this would be the cloud to set my sites on, as it would seem to contain the keys to identity theft and help a hacker decide whose identity to steal. The announcement is meant to show how Equifax’s cloud better serves banks and business customers.
New CEO Marc Begor, formerly with General Electric (NYSE:GE), and chief technology officer Bryson Koehler, recruited from International Business Machines (NYSE:IBM), are now spending $300 million per year, moving data off mainframes onto public clouds, like the one Alphabet sells.
The former headquarters, where Equifax once housed huge IBM mainframes, is now an arts school.
No Mention of Security
The Data Decision Cloud announcement says nothing about security.
Since its 2017 data breach, which exposed the data of 145 million Americans over the course of two months, Equifax has been insisting its problems are fixed and everything is OK. The scandal initially sent the stock down 20%, but its dividend has remained stable, and revenue has slowly kept climbing. A year after the Cambridge Analytica breach was revealed, FB stock remained 10% below pre-scandal levels.
Equifax created a “free” service after the breach, called TrustedID Premier, whose sign-up included language taking away consumers’ rights to sue it. It then offered consumers credit monitoring services through a rival, Experian (OTCMKTS:EXPGY), an alternative to freezing credit but at the cost of a consumer’s ability to take out loans. Consumers who haven’t signed up for the Equifax service can still have their credit report stolen easily.
Crime and Punishment
Former CEO Richard Smith stepped down after the 2017 breach, blaming a rogue employee for the problem, before the executive walked away with a reported $90 million.
Begor insists the breach didn’t mean Equifax doesn’t take cybersecurity seriously, but admits its systems are not “impenetrable.” He told Congress this month he’s had his identity stolen three times in the last decade.
The Government Accountability Office says the company and its peers are still unequipped to handle breaches like the one in 2017. Further empowering regulators at the Federal Trade Commission and Consumer Financial Protection Bureau could help prevent similar incidents from occurring in the future, according to the GAO. Meanwhile, at Equifax, it’s back to business as usual.
Bottom Line for Equifax Stock
How good is the business?
The 2017 breach and its aftermath have cost Expedia its market leadership, in favor of Experian, whose market cap is now $10 billion higher, with over $1 billion more in annual revenue. Market leadership in an industry America once controlled now comes out of Ireland.
Equifax is also a hard stock to recommend. The dividend yields just 1.36%, and despite what looks like a nice chart so far in 2019, it still trades at about 15% less than it did last September.
Investors, and consumers, still have plenty to worry about.
Dana Blankenhorn http://www.danablankenhorn.com is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family https://www.amazon.com/Reluctant-Detective-Finds-Her-Family-ebook/dp/B07FSRDR4Y/, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
