GreenSky LLC IPO stumbles out the gate in weak pre-holiday trading
WASHINGTON. There have been any number of hot-hot-hot cloud IPOs that have come to market over the last several months. Given that they’re hot-hot-hot, however, we have been shut out of every single one of them. That’s because hot IPO shares usually go to the rich guys first. It doesn’t matter what firm you’re currently using to buy and sell your stocks and bonds. They’re all the same when it comes to IPOs. Yet this morning, we actually scored a small number of shares in the new IPO of GreenSky Trade Credit LLC (new symbol: GSKY).
GreenSky is essentially a technology platform that facilitates consumer loans at the point of purchase. The standard brokerage firm description for GreenSky appears below.
“GreenSky Trade Credit LLC, headquartered in United States and with locations in Georgia, provides credit card services. The company’s products and services include co-branded credit or charge cards, private label credit cards, and installment loans for wholesalers and retailers; and credit programs, origination of new credit programs, and servicing and administration of new credit programs for financial institutions. Which serve customers such as financial institutions, wholesalers, and retailers located in United States. The company [was] founded in 2006.” (No direct link.)
Several bullet points, via a SeekingAlpha piece penned by Liz Kiesche, fill in most of the blanks.
- GreenSky (GSKY) is striving to succeed where other online lenders, such as LendingClub (NYSE:LC) , have struggled once they launch IPOs and become publicly traded stocks.
- The Wall Street Journal points out some differences between GreenSky and its competitors:
- GreenSky, which facilitates financing for home-improvement projects and elective healthcare, makes a profit — net income rose 11% last year to $139M;
- Its marketing expenses are much lower than companies that use a marketing model similar to LC’s–GSKY spent $2.2M on sales and marketing in 2017, less than 1% of revenue, compared with LC’s $229.9M, or 40% of revenue.
- GSKY finds borrowers through its about 12,000 partner merchants, which ask customers if they want to finance home-improvement projects with a GreenSky loan.
- Unlike LC’s “marketplace” lending model, GSKY has commitments from four large regional banks to use depositors’ money to extend credits.
In other words, GSKY is sort of like an online lender, except that it materializes in certain retail outlets. So it’s different enough from the Lending Clubs and Prospers of the world to be stable and growing. By different, we mean that it’s actually profitable. Now there’s a real IPO surprise.
Playing the GreenSky IPO
When GSKY priced last night at the top of its range, we felt that the stock might be a bit of a short term risk, mainly because it didn’t price above range like the cloud companies have been doing. But we figured we’d take a chance on it
- Because we actually like the business as the company has set it up; and
- Because we figured we might actually get some shares.
Bullet point one is a given. Bullet point two actually transpired because we did get some shares. But typically these days, whenever we DO get IPO shares, they either go nowhere or tank. The only hot IPOs are the ones we tend NOT to get. That’s been the case for small investors ever since this writer was actually in the biz decades ago. No change in this widespread policy appears on the horizon.
GreenSky has spent most of Thursday trading under its IPO price, which is not good. But this IPO was unfortunate enough to make its debut on a big headline risk day, i.e.,the Singapore summit cancellation. So it looks like we’ll need to stick with it for awhile and hope that it stabilizes, attracts new interest, and starts going up into capital gains territory. We shall see.
Interesting details on GreenSky
In the meantime, via our brokerage house’s news page (therefore, no direct link), Reuters provides the following additional information, slightly edited by us.
“GreenSky, a portal for consumers to access home improvement loans, is considered one of the most attractive fintech names in America. It is also the second fintech company this week after payments processor EVO Payments (EVOP) to see its IPO priced at the upper end of the expected range.
“While many technology-driven online lenders such as LendingClub (LC) and OnDeck Capital (ONDK) have struggled to grow their loan portfolios, weighed down by concerns over underwriting standards and access to funding, GreenSky avoids these perils by being a conduit to banks and other specialty lenders.
“The company had 1.7 million customers as of March 31, and has helped finance over $12 billion in loans with its bank partners which include SunTrust (STI), Regions Financial (RF), Fifth Third Bancorp (FITB) and Synovus Financial (SNV). GreenSky provides its services at the point of sale, which helps attract more customers and increase sales volume. It counts Home Depot [HD) as its biggest merchant.
“In 2016, the company began expanding into elective healthcare to target creditworthy consumers who make large purchases…. GreenSky’s 2017 revenue jumped 23.5 percent year-over-year to $325.9 million, while profit rose 11.4 percent to $138.7 million as transaction volumes surged 31 percent.”
Impressive, eh? But a few more investors need to get impressed before we make any money on this one.
Generally “blah” trading action Thursday (and Friday)
General trading action for the rest of today and tomorrow is likely to be anemic. The coming Memorial Day holiday and a long-weekend off from investing are mostly to blame. Many individuals and traders have gone AWOL at the beach. That means the bears will probably control the action, since the bulls are likely already at the beach.
For that reason, we may or may not post either of our columns Friday. Action leading up to long Federal holiday weekends tends to be negative and weak. The action that resumes next Tuesday and beyond will give us a better tell.