BTIG Affirms On Deck Capital (ONDK) at 'Neutral'; Mix-Shift Seen as Continual Headwind
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BTIG affirms On Deck Capital (NYSE: ONDK) with a Neutral rating following Q2 results reported Monday night.
Analyst Mark Palmer commented today:
At the root of investor concerns that have been weighing on shares of On Deck Capital (ONDK) for the past three months was the company’s decision to shift its funding mix such that it retains more loans on its balance sheet. The provision expense it must book against those loans is set to drag down its operating results during the balance of 2016.
The impact of that mix shift on ONDK's operating results was demonstrated in the 2Q16 report it released yesterday after the market close as it reported a 33% year-over-year decline in net revenue and its adjusted EBITDA fell to negative $12.4mm from $8.7mm in the prior year period ... The mix shift was also seen in ONDK's loans under management and unpaid principal balance (UPB), which increased by 47% and 57%, respectively, during 2Q16 versus the prior year period to $1bn and $790mm as management's plan to retain more of its loans on balance sheet took hold. Consistent with that plan was the decline during 2Q16 in the portion of the company's loans sold through its marketplace platform, which fell to 15.6% from 32.8% in 2Q15
While the company's loan origination growth was encouraging, we believe the impact of its mix shift will continue to serve as a headwind to share price appreciation in the near term as investors struggle with what multiple to assign to its cash flow under its altered business model, Palmer said.
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