Last year Elevate Credit was forced to pull its IPO amid volatile market conditions and a lack of appetite for new issues. It was assumed that the company would come back when markets were more stable and that is exactly what has happened. Today is the first day of trading for the company and while the shares were up 21% from their $6.50 IPO price, it is not all good news. The company was forced to slash its original IPO price range of $12-$14 amid investor concerns about sub-prime lenders. So, what does the future hold for Elevate Credit?
A difficult sell
While there are millions of people in the US who, to quote Elevate Credit, “are somewhat recessionary all of the time” this is not the easiest sell to investors. First of all sub-prime lenders tend to benefit in troubled economic times so selling a sub-prime lender IPO as a growth stock, assuming the US economy grows, is not easy. Secondly, there are growing concerns that both real estate and car loan delinquencies are increasing. So, if you put these two issues together, even though the IPO price was slashed, the company has done relatively well to get the issue away.
The financials
Elevate Credit increased gross revenues by 34% to $580.4 million for the year ended 2016. This is a significant jump by any measurement although net losses did increase from $19.9 million up to $22.4 million. Under pressure from the government and regulators, sub-prime lenders have seen their annual percentage rates slashed since 2013 with Elevate Credit experiencing a fall of 42%. However, with an annual percentage rate of 146%, according to official regulatory filings, this is still an expensive source of revenue for anybody.
There are some who believe that sub-prime lenders offer a hedge against volatile markets but what they make on one hand they could lose on the other. Elevate Credit still managed to raise $93 million although this was less than the original $100 million proposal. The company will look to pay down some of its own debt (rather ironic?) and does look well positioned for the future. However, how do markets value sub-prime lenders in the good times and the bad times?
IPOs
While SnapChat was forced to reduce its IPO price at the last minute the shares actually did extremely well. Even though they have since fallen back from their near $30 high to just over $20 this is still well in excess of the IPO price. It was always going to be difficult for Elevate Credit because basically the company is seen as benefiting from difficult economic times. While this is not necessarily the case, because many customers seem to live in a constant recessionary environment, do markets fully appreciate the company’s potential?
Markets are currently off their high amid concern about potential difficulties Donald Trump may have in pushing through some of his more controversial policies. While some may be calling the top of the “Trump rally” others believe this is a healthy short-term consolidation before Donald Trump really hits the ground running. He has announced plans to increase economic growth from the sub 2% forecast by the Federal Reserve to around 4% in the short to medium term. Will Donald Trump deliver? Do investors still have an appetite for IPOs?