Am I understanding correctly? In your bear case you have both evPFL and operating profit margins *much* higher than what they are guiding to for 2025.
I suppose I can see evPFL getting back to the $90s for 2026, but what gives you confidence that they can reach 35% operating margin in 26 when they're nowhere close to that today?
Thanks. Management has only guided to something like 20%-25% non-GAAP operating margins and your bear case is 35%.
Obviously I understand (and share) your views on operating leverage. It's the magnitude of your forecast that I think raises eyebrows. Should I just take this to mean that you think management is sandbagging?
This is not a knock on the outgoing CFO in the slightest (I think he did a good job steering Blend through a very difficult time) but I think Haveli realizes the value of the asset they have and are bringing in the big guns.
The new CFO's last 2 companies SolarWinds and SailPoint were both taken private by PE.
Fwiw Haveli also brought in their own Head of Product last year.. so I think they are upgrading the team and its generally a good thing for us as shareholders that such a large investor is taking an active involvement in Blend. To some extent it reduces our downside risk as worst case they can always take Blend private. Their cost basis on the converts is $3.25/share.
With the recent price action what makes you think Haveli isn’t angling for a cheap buyout? I feel like Nima wouldn’t want that but the market isn’t fairly valuing blend, and if the sell off continues it just becomes more attractive to them. I’m hoping the couchbase acquisition makes them hold off for a while.
It could happen, I wouldn't rule it out entirely but it would be hard for management to argue that it presents a better option than staying public. There will be shareholder lawsuits etc. Is that worth the hassle? If there is a buyout I'd suspect it happens close to the $3.25 price where Haveli's warrants are priced.
So there's basically no debt but an incredible # of outstanding shares. I do like they're buying back shares which you wouldn't do unless you're profitable and/or you have other debt/convertible lined up. Can you comment on likelihood of actual 2025 profitability and how they will use funds? I haven't checked but management is probably due some cash consideration and not play it all on NQSOs
They were FCF positive in Q1 2025. Full year profitability will be a function of interest rates, so hard to know but if rates come down I think they will do very well. My hope is that they will reinvest the cash flows in the business to grow faster.
Hey awesome write up. Nice job! Can I ask a few questions? 1) do you know what % of total U.S mortgage originations flow through their platform? I see 20% in 2022. 2) they get a fee for every mortgage that gets processed through the platform . How about for refinances? Is the fee the same? 3) of the top 10 mortgage originators in the U.S., how many use blend labs tech stack? Further, has the ceo given color on which of those top 10 they have a realistic chance of getting as customers?
1) They changed how they reported marketshare so hard to know exactly, but my sense is that they are at ~20% now.
2) They also get a fee if the mortgage is refinanced through the same bank that issued the mortgage using Blend. They recently introduced a Rapid Re-fi product to help banks with this.
3) 4 out of the top 10 and 10 of the top 20
4) On the Q1 2025 conf call he hinted at some large customer wins: "We signed a top 5 mortgage servicer and a top 10 national mortgage originator across our mortgage, home equity, and close solutions" but didn't name them
Thanks Jay! I believe Blend was able to extinguish Mr. Cooper's put option. This is from Nima on their Q4 2024 conference call:
"As part of our ongoing simplification efforts, we've recently signed an agreement with Mr. Cooper that extinguishes the put option they hold in connection with our prior acquisition of Title365 and extends our partnership through 2028 with a meaningful commitment to each other."
Thank you very much, I was not aware of this. Is this correct then: that today, COOP still owns 9.9% of BLND, but in order to insure that COOP could not be forced out of its' BLND ownership, COOP negotiated new terms with BLND that removed COOP's ability to force BLND to buy out COOP's ownership? I found this quote in a 2023 Housing Wire online article: "To compound that, Mr. Cooper can force Blend to buy its remaining 9.9% ownership interest with a put option, which was valued in December 2022 at $53.2 million." What I am trying to determine: I think the new agreement the "extinguishes the put option" between BLND and COOP bring them closer together, rather than put them further at arms length?
The February 2025 agreement between Blend and Mr Cooper cancelled the put right, so Blend no longer has any obligation to buy that stake back. TL;DR a $50M contingent liability was removed from Blend's balance sheet.
This was an awesome read, thanks.
Thank you, I’m glad you enjoyed it!
Am I understanding correctly? In your bear case you have both evPFL and operating profit margins *much* higher than what they are guiding to for 2025.
I suppose I can see evPFL getting back to the $90s for 2026, but what gives you confidence that they can reach 35% operating margin in 26 when they're nowhere close to that today?
Yes you are understanding it correctly. When costs stay flat and the number of products they sell go up, margins tend to improve.
Thanks. Management has only guided to something like 20%-25% non-GAAP operating margins and your bear case is 35%.
Obviously I understand (and share) your views on operating leverage. It's the magnitude of your forecast that I think raises eyebrows. Should I just take this to mean that you think management is sandbagging?
How do you feel about the new CFO?
TL;DR I think Jason is a strategic upgrade
This is not a knock on the outgoing CFO in the slightest (I think he did a good job steering Blend through a very difficult time) but I think Haveli realizes the value of the asset they have and are bringing in the big guns.
The new CFO's last 2 companies SolarWinds and SailPoint were both taken private by PE.
Fwiw Haveli also brought in their own Head of Product last year.. so I think they are upgrading the team and its generally a good thing for us as shareholders that such a large investor is taking an active involvement in Blend. To some extent it reduces our downside risk as worst case they can always take Blend private. Their cost basis on the converts is $3.25/share.
With the recent price action what makes you think Haveli isn’t angling for a cheap buyout? I feel like Nima wouldn’t want that but the market isn’t fairly valuing blend, and if the sell off continues it just becomes more attractive to them. I’m hoping the couchbase acquisition makes them hold off for a while.
It could happen, I wouldn't rule it out entirely but it would be hard for management to argue that it presents a better option than staying public. There will be shareholder lawsuits etc. Is that worth the hassle? If there is a buyout I'd suspect it happens close to the $3.25 price where Haveli's warrants are priced.
one of the best pitches on substack and it's your first one?
Thank you, I’m glad you liked it!
So there's basically no debt but an incredible # of outstanding shares. I do like they're buying back shares which you wouldn't do unless you're profitable and/or you have other debt/convertible lined up. Can you comment on likelihood of actual 2025 profitability and how they will use funds? I haven't checked but management is probably due some cash consideration and not play it all on NQSOs
They were FCF positive in Q1 2025. Full year profitability will be a function of interest rates, so hard to know but if rates come down I think they will do very well. My hope is that they will reinvest the cash flows in the business to grow faster.
Hey awesome write up. Nice job! Can I ask a few questions? 1) do you know what % of total U.S mortgage originations flow through their platform? I see 20% in 2022. 2) they get a fee for every mortgage that gets processed through the platform . How about for refinances? Is the fee the same? 3) of the top 10 mortgage originators in the U.S., how many use blend labs tech stack? Further, has the ceo given color on which of those top 10 they have a realistic chance of getting as customers?
1) They changed how they reported marketshare so hard to know exactly, but my sense is that they are at ~20% now.
2) They also get a fee if the mortgage is refinanced through the same bank that issued the mortgage using Blend. They recently introduced a Rapid Re-fi product to help banks with this.
3) 4 out of the top 10 and 10 of the top 20
4) On the Q1 2025 conf call he hinted at some large customer wins: "We signed a top 5 mortgage servicer and a top 10 national mortgage originator across our mortgage, home equity, and close solutions" but didn't name them
Thank you! I’m struggling to see how your thesis wouldn’t pan out other than rates not coming down.
Thank you for the report! Just a reminder that Mr. Cooper (who are now tied-at-the-waist to Rocket) retain a 9.9% ownership in Blend Labs. This dates from their original sale of Title365 to Blend. https://www.housingwire.com/articles/blend-talks-rocket-mr-cooper-deal-will-exit-title-biz/
Thanks Jay! I believe Blend was able to extinguish Mr. Cooper's put option. This is from Nima on their Q4 2024 conference call:
"As part of our ongoing simplification efforts, we've recently signed an agreement with Mr. Cooper that extinguishes the put option they hold in connection with our prior acquisition of Title365 and extends our partnership through 2028 with a meaningful commitment to each other."
Thank you very much, I was not aware of this. Is this correct then: that today, COOP still owns 9.9% of BLND, but in order to insure that COOP could not be forced out of its' BLND ownership, COOP negotiated new terms with BLND that removed COOP's ability to force BLND to buy out COOP's ownership? I found this quote in a 2023 Housing Wire online article: "To compound that, Mr. Cooper can force Blend to buy its remaining 9.9% ownership interest with a put option, which was valued in December 2022 at $53.2 million." What I am trying to determine: I think the new agreement the "extinguishes the put option" between BLND and COOP bring them closer together, rather than put them further at arms length?
The February 2025 agreement between Blend and Mr Cooper cancelled the put right, so Blend no longer has any obligation to buy that stake back. TL;DR a $50M contingent liability was removed from Blend's balance sheet.