Investors are falling out of love with online lenders.
a financial-tech company that arranges loans for home-improvement projects and medical procedures, fell as much as 37% to $6.54 on Tuesday after it announced it was exploring a potential sale or merger in addition to a second-quarter earnings report that missed analysts’ expectations.
The plunge in GreenSky’s stock comes one week after
On Deck Capital
fell 23% the day it disclosed that JPMorgan Chase & Co. was winding down an online small-business lending partnership with the company that had been in place for more than three years.
Rising loan defaults and concerns over future growth opportunities have prompted investors to rethink valuations for a class of companies that uses better technology to determine creditworthiness and offer loans over the internet and mobile phones.
It is a humbling turn for a sector that had recently been on the upswing. GreenSky made a splashy debut on public markets a little over a year ago, positioning itself as a fast-growing tech company that had been profitable for years. On Deck shares more than doubled between May 2017 and early 2019 after it laid off employees and focused on stopping losses partially in response to a campaign from an activist investor.
Now, GreenSky has tapped banks and other advisers to explore strategic alternatives. Valued at more than $4 billion at its May 2018 public listing, GreenSky shares have plunged by about two-thirds through Tuesday.
“We believe that the company’s current market value does not reflect the company’s intrinsic value,” Chairman and Chief Executive David Zalik said on a conference call with analysts.
GreenSky’s second-quarter profit fell 4% to $39.2 million, or 19 cents a share, from a year earlier on revenue of $138.7 million. The company generates the bulk of its revenue from the fees it charges Home Depot Inc. and more than 16,000 merchants to offer consumers loans.
Though it positions itself as a technology company, GreenSky depends on a small number of banks to fund nearly all of its loans. One of those banks, Regions Financial Corp., said during the second quarter that it wouldn’t renew a funding commitment to GreenSky, spooking investors.
Meanwhile, the rate of GreenSky loans that were more than 30 days delinquent rose to 1.31% in the second quarter, up from 1.16% a year earlier.
The spate of bad signals may make online lenders tough for investors to stomach in the near term.
“Potential strategic buyers would be weighing loans with attractive economics against late-cycle concerns, slowing growth, and questions on the competitive landscape,” wrote Autonomous Research analyst Robert Wildhack in a research note Tuesday.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com
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