What happened
Open Lending (LPRO 0.81%) was in freefall on Wednesday, falling as much as 35.6% during the trading day. By 3:15 p.m. ET it had gained back some of its losses and was down 22.6% on the day. Year to date, the stock is up 17%, trading at $8 per share.
The markets were trending lower on Wednesday as the S&P 500 index fell 12 points (0.3%), the Dow Jones Industrial Average dropped 33 points (0.1%), and the Nasdaq Composite plunged 106 points (0.8%) as of 3:15 p.m. ET.
So what
Open Lending is a firm that provides automated lending services to financial institutions that offer auto loans. Its services include loan analytics, risk modeling, default insurance, automated decision technology, and risk-based pricing that helps lenders generate profitable loans, with a focus on those that serve non-prime or underserved borrowers. The company earns money through fees on the loans it facilitates and gets a fixed percentage of the monthly underwriting profit from lenders.
The major catalyst for today's drop was its second-quarter earnings release and guidance. The earnings themselves were in line with consensus expectations, while revenue beat estimates. However, they were down considerably year over year, as revenue was $38 million, down from $52 million a year ago on 34,354 facilitated loans. The number of facilitated certified loans was down from 44,531 in Q2 2022.
Net income in the quarter was $11.4 million, down from $23.1 million a year ago, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $20.7 million, down from $34 million in the second quarter of 2022.
Now what
Open Lending's steep drop on Wednesday likely had more to do with its outlook for the third quarter than its second-quarter earnings.
The company projected total certified loans facilitated of 26,000 to 30,000, which would be significantly lower than last quarter. Guidance for revenue is in the $29 million to $34 million range, while adjusted EBITDA is expected to be $13 million to $17 million. These numbers are all down from the same quarter a year ago, and also down from the second quarter of 2023.
Open Lending has had a decent run this year, but its valuation has crept up with a forward price-to-earnings (P/E) ratio of 28, up from 11 on June 30, 2022.
Open Lending operates in a nice niche, serving lenders who serve non-prime and underserved borrowers, and conditions should improve in the market. It could be a bumpy quarter, but keep an eye on Open Lending, particularly if its valuation comes down.
