We’ve seen a remarkably high level of IPO activity over the past year or so, and it doesn’t appear to be slowing down. That’s especially true in the mortgage lending space — Rocket Companies (NYSE: RKT), United Wholesale Mortgage (NYSE: UWMC), and Home Point Capital (NASDAQ: HMPT) have all recently gone public.
These now-public mortgage lenders are being joined by loanDepot (NYSE: LDI), which just went public on Thursday, Feb. 11. Here’s what investors should know about the IPO and loanDepot’s business.
LoanDepot’s IPO was smaller and cheaper than expected
Initially, loanDepot had been planning to sell 15 million shares in its IPO at a price in the $19 to $21 range but was forced to scale back on both metrics due to weak demand. The online mortgage lender ended up selling 3.85 million shares at an IPO price of just $14, well below the initial range. And it’s worth noting loanDepot was initially expected to go public about a week prior.
This wasn’t the first time loanDepot initiated the IPO process. The company had planned an IPO in 2015 and again a couple years later but decided that neither of those were the right time.
It looks like investors are more optimistic about the company now that it’s trading on the public markets. As of 4 p.m. EST on IPO day, shares had risen by around 50% above the IPO price to more than $22.
Promising growth, even before 2020
Despite the so-so IPO, loanDepot’s business has been firing on all cylinders lately. The company originated $79.4 billion of loans in the 12-month period ending Sept. 30, 2020, which was 116% year-over-year growth. About three-fourths of loanDepot’s business is direct-to-consumer, while the rest is partner-driven through relationships with mortgage brokers, homebuilders, and other professionals.
To be fair, the main reason origination volume more than doubled in 2020 is because of the record-low mortgage rate environment, which has led to a surge in demand, especially for refinancing. However, it’s worth noting that loanDepot’s growth was impressive long before interest rates fell. In fact, the company’s market share has grown from 1.0% in 2014 to 2.6% in 2020. The business has become more efficient as well, as the company’s customer acquisition cost has declined by 52% since 2017.
The company aims to leverage its technology to improve the consumer experience and grow its market share even further over time. And with $11 trillion in consumer mortgage debt in the United States as of Sept. 30, 2020, this is quite a large addressable market opportunity.
A word of caution
To be sure, loanDepot’s growth has certainly been impressive. But at the same time, it’s important to point out there’s a reason why so many mortgage lenders are choosing to go public now. Simply put, 2020 and so far in 2021 have been a fantastic time to be a mortgage lender, especially one with mainly online operations. Record low mortgage rates have resulted in tremendous demand for mortgages — especially with refinancing. And loanDepot has been highly dependent on refinancing, even before the 2020 interest rate plunge. In 2019, for example, nearly 60% of originations were refinancing loans.
It’s likely the low-rate environment will persist for at least the next couple of years, but that’s not a guarantee. A spike in interest rates could lead to a big drop in mortgage demand — especially for refinancing — so keep this in mind when investing in loanDepot or any other mortgage lenders in 2021.
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