Why On Deck Capital Stock Is Soaring Today

What happened

Actions of Capital on the bridge (NYSE: ONDK) were up nearly 25% as of 1:00 p.m. EDT Tuesday as the company beat consensus earnings expectations in the second quarter and raised its outlook for the remainder of the year.

The company said it achieved adjusted net income of $ 10 million, or $ 0.13 per diluted share, in the second quarter, much better than the $ 0.05 expected by analysts on the same basis.

So what

The big news for On Deck Capital’s second quarter was the change in its annual guidance for 2018. These changes are detailed in the table below.

Metric

Previous orientation

New orientation

Gross revenue

$ 372 million to $ 382 million

$ 380 million to $ 386 million

Net revenue

0 to 10 million dollars

$ 10 to $ 16 million

Adjusted net income

$ 18 million to $ 28 million

$ 30 million to $ 36 million

Data source: On Deck Capital.

The company’s outlook is for loan balances to grow 10-15% for the full year 2018, and a provisioning rate in the low end of its 2018 forecast of 6-7% in loan balances.

Image source: On Deck Capital.

On Deck Capital has benefited from a certain operating leverage as its creations have grown. The company said it took out $ 587 million in loans during the quarter, a 27% year-over-year increase. This has helped it become more efficient, with sales and marketing spend falling to 1.9% of origination volume from 3.3% in the same period last year.

Notably, credit losses also appear to be normalizing, with the company’s provisions standing at just 5.7% of end-of-period loans, up from 7.2% in the second quarter of 2017. With loss reserves on loans equal to 12.1% of loans at the end of in the quarter, On Deck could credibly report a decline in provisions throughout the remainder of the year, even as its portfolio grows.

Now what

On the conference call, management was optimistic about the competitive environment. CEO Noah Breslow said: “It’s competitive there, but it’s also a rational environment – a lot more rational than it was, you know, 18 or 24 months ago.” He pointed out that On Deck’s customer acquisition costs have stabilized, although creations have increased significantly over the period last year.

We’ll have to see how the rest of the year plays out, but On Deck’s second quarter has given Wall Street something to be excited about.

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