Blend is now worth $4.6B. Now what?

Now that it's a public company, the fintech firm has an opportunity to increase its power in mortgage while expanding into new areas

Blend Labs‘ life as a public company is off to a promising start.

Late last week, Blend sold 20 million shares of Class A stock at $18 apiece, raising $360 million. Shares closed trading at $20.90, giving Blend a valuation of around $4.6 billion. Blend CEO Nima Ghamsari will control 100% of Class B shares, giving him complete control of the firm.

The independent public offering comes following a banner year for the mortgage industry, in which Blend still lost $75 million on revenue of $96 million. It also lost $81 million on revenue of $51 million in 2019, according to its S-1 filing.

The IPO gives the cloud-based software company the ammunition to grow market share, develop new products and dive deeper into various sectors within fintech, including consumer banking and auto.

Blend’s investors are apparently convinced that the company can radically transform lending, simplifying and digitizing regimented-but-clumsy processes that are still rather paperwork-heavy.

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“I think they’re excited about our vision, really pleased with our execution and see huge opportunity for us to serve our customers and grow going forward,” Blend President Tim Mayopoulos, a former CEO of Fannie Mae, said in an interview with HousingWire on Friday. “So, the roadshow was very, very well received.”

Blend’s white-label technology is what powers mortgage applications on the website of traditional banks such as Wells Fargo and U.S. Bank, as well as large credit unions and even tech companies. It checks income, it verifies identities and has become an essential consumer-facing processing tool for some of the largest mortgage lenders in the country.

Over the last two years, Blend has acquired its own mortgage insurance firm and title insurance firm (the latter in a $422 million deal).

The startup, led by co-founder Ghamsari, helped 291 clients process roughly $1.4 trillion in loan applications last year, and has vowed to make processing a mortgage — or other financial transactions — as easy as picking a movie that’s been curated for them by Netflix.

“Consumers are now demanding that they be able to interact with their financial institution, whether that’s a bank or credit union or an independent mortgage lender,” said Mayopoulos. “They want to be able to do that digitally, they want to do that on their phone. And so I think, I think, lenders of all sizes are recognizing that, and they are pivoting towards digital experiences.”

He added: “I think every lender out there recognizes that to be competitive, successful in the market, they need to be able to have seamless digital experiences for consumers. That’s what people are looking for in every aspect of their life, whether it’s buying something on Amazon or ordering a movie on Netflix. People want to be able to interact with their bank or their credit union or their lender in exactly the same way.”

As of March 31, 2021, the number of participants in Blend’s “ecosystem” grew by more than 1,300% year over year, the firm said in its prospectus. Blend’s investors are betting that the firm can be much more than the tech that underpins mortgage application processing.

Blend, which launched in 2012, raised $300 million in January, not long after it introduced a series of consumer banking tools.

Company executives and their investors seem unconcerned about Blend’s lack of profitability. (It’s normal for investors to overlook a blue-chip tech company being in the red; not so much for lower-margin businesses such as mortgage.) Mayopoulos said the company was focused on long-term value potentiation over short-term profitability. He also said the money the IPO raised will go toward investing in technology.

As for upcoming challenges, mortgage rates are expected to rise later this year, which would likely reduce demand for mortgages and lead to lower transaction volume on Blend’s platform. Blend also has some big competition to worry about. Black Knight and ICE Mortgage Technology (formerly known as Ellie Mae) have far larger market caps and a strong interest in every stage of the mortgage origination and servicing process.

But Blend has a strong chance to grow a fintech that competes with those behemoths, according to Julian Hebron of The Basis Point. He wrote in a recent note that Blend’s CEO Ghamsari is great at product, it’s easier for the company to attack other elements of consumer banking after mastering mortgage, and is well positioned to capitalize on ancillary revenue lines.

“Blend calls ancillary revenue lines Marketplaces because their voice is generally talking to the consumer,” Hebron wrote. “So if you’re getting a mortgage, you need homeowners insurance and title insurance. You can get homeowners insurance right in the Blend app your bank is having you use, and you’ll see options to select insurance from name-brand providers, including Blend’s own insurance company they started in 2018. Same process now goes for title insurance, and those options now include Blend’s own title insurance company they acquired this year. Integrating real estate agents is next. This goes to the product sensibility in item 2 above, where you’re not just adding functionality, but you’re simplifying the holistic process.

“Anyone in the banking and lending weeds knows how hard it really is to deliver this singular experience for the housing consumer. And Blend has found a way to do it where each consumer enhancement adds new revenue without risking core revenue.”

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