On a down day for the market, next-generation real estate finance specialist loanDepot (LDI -1.10%) fell 9.2%. The reason why is simple -- the company's latest set of quarterly earnings was published after market hours Tuesday, and they raised some serious concerns about its business.
loanDepot isn't getting its 2022 off to a good start, let's put it that way. For the first quarter of the year, total revenue declined by a worrying 62% year over year to just over $503 million. Loan originations also went south, although not as steeply; they declined by 26% over that one-year stretch to $21.6 billion.
With such a steep fall, it's hard to maintain profitability, and so it was for loanDepot. On the bottom line, the company flipped dramatically into the red with a non-GAAP (adjusted) net loss of almost $82 million, or $0.26 per share. In the year-ago quarter, the company netted a meaty adjusted profit of nearly $320 million.
loanDepot didn't come close to meeting analyst expectations for the quarter. Collectively, prognosticators following the stock were estimating it would earn just under $586 million on the top line, and post an adjusted net profit of $0.03 per share.
To be fair, it can be tough for financial services companies concentrating on loans to do well in a rising-interest-rate environment. The company quoted its founder and executive chairman Anthony Hsieh as saying: "Our results reflected the sharp and rapid increase in market interest rates, which led to significantly lower profit margins during the latter half of the quarter."
"While we made progress toward our goal of reducing the expense base to align with earlier expectations, our volumes have continued to decline and expense reductions have not kept pace with the rapidly changing environment," he continued. "Intense competition, lower volume and decreasing profit margins are putting pressure on the entire industry."
Neither a borrower nor a lender be?
So, in other words, loanDepot is contending with an unhappy combination of negative factors. It's always going to face determined competition in its wheelhouse (mortgages and related real estate services), since the barriers to entry in the segment aren't particularly high.
And abrupt interest rate increases, whether anticipated or not, make would-be borrowers think twice about loans. They also create headaches for creditors that provide fixed-rate loans.
Finally, the next-generation finance sector as a whole is struggling, and investors are turning ice-cold on some of its top names. Witness the sustained sell-off in Upstart Holdings after its recent earnings release, for example.
For a company like loanDepot, there isn't a quick fix for any of this. It could very well be in for several quarters of more pain, so it's hardly surprising that investors are selling out of the stock now.