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Credible Labs Extends Potential To Mortgages

Small Caps | Oct 11 2018

Credible Labs extends the value proposition of traditional online financial intermediaries. Moelis originates coverage of the stock.

-Well-positioned to attract customers to the site and increase originations
-Significant rebound in earnings expected in second half of 2018
-Current valuation ascribes limited value to the mortgage vertical


By Eva Brocklehurst

Technological solutions to compare finance products and make financial decisions online continue to improve and Credible Labs ((CRD)) is at the forefront of this development. The company has a lender-integrated platform which extends the value proposition of traditional online intermediaries. Credible Labs can generate accurate, pre-qualified credit offers from its partners and manage much of the origination.

Moelis believes the online financial intermediary space is under-penetrated compared with other industries such as travel and insurance and the company's first-mover advantage makes it well-positioned to attract customers to the site and increase its share of originations.

Credible Labs is developing mortgage, personal loan and credit card verticals, potentially creating a combined market opportunity that is around 60x larger than its original student loan platform. The scale of this opportunity creates a long pathway to growth, Moelis believes, with material upside to the current valuation, even if only a small proportion of the market is captured.

Having had strong execution in student lines the company can build brand affinity early in a consumer's financial product life-cycle. The core demographic is Millennials, who are increasingly likely to compare product online and use technology for speed and transparency, as traditional paper-based applications are considered cumbersome and time consuming.

Moelis cites a recent study by Oliver Wyman which found 29% of borrowers seeking to refinance mortgages used online search engines and this figure was even greater, at 69%, for the more internet-savvy demographics.


Moelis initiates coverage with a Buy rating and $1.40 target, noting the US consumer finance market is the largest in the world and the current market valuation of the stock ascribes limited value to the mortgage vertical. Domestic lenders spend around US$13bn on digital marketing and online intermediaries represent a US$2.5bn segment.

The broker expects Credible Labs will be able to generate robust revenue growth in a rising interest rate environment. In the first half of 2018 the company reported gross profit fell -21% as advertising costs increased and the budget was deployed towards TV marketing.

Moelis expects a significant rebound in revenue in the second half as site traffic has reached record levels. The broker assumes a contribution from mortgage purchases from 2020 and forecasts break even in 2022. Estimates also assume a recovery in gross margin to 35% and significant operating leverage beyond 2019.

If the company can obtain just 0.5% of the total mortgage origination market Moelis estimates upside of 2.9x  the current market valuation, assuming the stock continues trading on a 4.5x enterprise value/sales multiple. The broker also assesses Credible Labs as a valuable acquisition target for strategic operators and larger platforms.

Despite the clear value proposition, online intermediaries remain under-penetrated in the financial services industry. In the UK, generally regarded as one of the most digitally advanced regions, there are only 10% of customers using a comparison site for credit cards in the last 12 months, versus 44% for motor insurance and 30% for hotels.

Moelis suspects other categories, such as mortgages, are likely to be even less penetrated. The broker estimates a visible market opportunity of US$5.8bn for the online intermediary market. This assumes intermediaries can generate 10-25% of total originations.

The company launched a private pilot of its mortgage refinancing marketplace in California and North Carolina in July, featuring four of the top 10 US mortgage lenders and this represents the first multi-lender pre-qualification for refinancing mortgages. Regulatory approval has been secured to offer mortgage broking across 20 US states, representing around 65% of overall US mortgage refinancing originations. A public launch is expected this month.


Credible Labs is a consumer finance business, enabling borrowers to compare and apply financial products online. The traditional form of online intermediary is extended through an integration of credit bureaus and financial institutions.

The company was founded in 2012 as a student loan marketplace, capitalising on the systemic mispricing of student debt in the US. The company raised US$39m at its IPO in December 2017 to support product development and an accelerated market penetration.

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