Blend Labs May Be Turning the Corner: Is It Time To Buy?

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Written By Kris Enyinnaya

Blend Labs, Inc. (NYSE: BLND), is a pivotal player in the financial technology sector. As we approach FY2023, the company is on the verge of significantly reducing its losses, a notable achievement given the backdrop of declining sales growth. 

Furthermore, there’s an optimistic outlook for FY2024, with projections indicating a resurgence in sales growth and a continued decrease in losses. 

This update provides a comprehensive analysis of Blend Labs, often referred to as a “Busted IPO,” highlighting its recent performance, strategic directions, and future prospects.

Company Profile

Based in San Francisco, Blend Labs stands out as a provider of cloud-based software platform solutions. 

Credits: DepositPhotos

The company’s offerings encompass a broad range of white-label products designed for consumer financial services, including mortgages, home equity loans and lines of credit, vehicle loans, personal loans, credit cards, and deposit accounts. 

A significant portion of its business revolves around offering services such as income verification for mortgages, homeowners insurance, title search procedures for title insurance policies, escrow, and other closing and settlement services. 

These services cater to a diverse clientele, including credit unions, non-bank mortgage lenders, and fintech companies. Blend Labs operates through two primary business segments: the Blend Platform and Title365. Currently, the company’s stock is trading at approximately $2.50 per share, with a market capitalization nearing $675 million.

Read More: Consensus Cloud Solutions (NASDAQ: CCSI) is an Intriguing Investment Opportunity 

Financial Performance Overview

In its Q3 results, announced on November 7th, Blend Labs reported a revenue decline of just over 26% year-over-year, totaling $40.6 million. These figures aligned closely with analyst expectations. 

The company’s platform revenue stood at $28.6 million, with its Mortgage Banking Suite witnessing an 11% decline year-over-year to $20.3 million. 

However, this was a smaller drop compared to the 14% decrease in overall mortgage volume industry-wide during the same quarter. Notably, the economic value per funded loan in the mortgage suite increased to $86 from $77 in the previous year, indicating deeper client relationships.

During the quarter, two areas of growth were professional services revenue, which saw an 18% increase from the previous year to $2.1 million, and Consumer Banking Suite revenue, which also rose by 18% to $6.3 million.

Towards Profitability

The cost-cutting strategies previously outlined have started to show positive outcomes, with GAAP gross profit margin escalating to approximately 54% from 38% in 3Q2022. 

This improvement played a crucial role in reducing Blend Labs’ non-GAAP loss from operations to $15.9 million from $37.1 million year-over-year, despite a revenue downturn.

Also Read: Astronics Corporation (NASDAQ: ATRO) Sees Strong Year-On-Year Revenue Growth, But is it a Buy?

Market and Analyst Perspectives

The sentiment among analysts towards Blend Labs remains cautious, with several firms including UBS and William Blair maintaining Hold/Sell ratings post-Q3 announcements. Price targets range from $1.85 to $3.00 per share. 

However, Goldman Sachs has upheld a Buy rating, albeit with a modest price target increase. Wells Fargo emerges as a notably optimistic voice, upgrading the stock to an Overweight rating and setting a $3.50 price target.

Financial Stability

Exiting Q3, Blend Labs had over $250 million in cash and marketable securities, alongside approximately $225 million in long-term obligations and an undrawn $25 million credit facility. 

The company significantly reduced its cash burn to just under $26 million in Q3, marking substantial progress from the previous year.

Looking Forward

For FY2022, Blend Labs reported a 78 cents per share loss on revenues of $235 million. Analyst consensus now anticipates a reduction in losses to 41 cents per share for FY2023, with sales projected at $157 million. 

Credits: DepositPhotos

As the company prepares to release its Q4 results, there’s cautious optimism regarding further loss reduction to 21 cents for FY2024, coupled with a 12% sales growth expectation.

Despite these strides in cost management, the broader housing market’s stagnation, characterized by high mortgage rates and historically low existing home sales, tempers immediate enthusiasm for Blend Labs.

The upcoming Q4 results and any signs of a turnaround in the housing sector will be critical for evaluating the company’s trajectory towards profitability and providing a clearer investment outlook.

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