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The market has been relatively kind to recent tech initial public offerings, and GreenSky Inc. is about to test the market’s receptivity to fintech.
GreenSky which provides consumer loans that originate at the point-of-sale system, is expected to go public this week through an IPO that could value the company at more than $4 billion.
The company, one of the largest fintech firms in the U.S., recently filed IPO paperwork and intends to sell some 34 million shares at an expected price of $21 to $23 a share. At the high end of that range, the company could raise $784 million. The stock will trade on the Nasdaq under the ticker “GSKY.”
Here are five things to know about GreenSky and its impending IPO.
Catering to the home-improvement and elective health-care markets
GreenSky’s traditional business has been to enable consumers to get loans at the point-of-sale system when shopping at home-improvement merchants. The company serves as “the middleman for banks, merchants and consumers seeking low-cost loans for big-ticket items,” according to Susquehanna analyst Jamie Friedman. GreenSky said in its IPO prospectus that the home-improvement industry is a “fragmented” market that saw roughly $315 billion in spending last year, citing data from Harvard. The company focuses on home-improvement purchases that are “suitable for financing.”
The company’s reliance on the home-improvement market is a potential concern, however. “If there’s a home-improvement slowdown or a housing slowdown, GreenSky could be impacted,” said Phil Haslett, co-founder at EquityZen, an online marketplace for pre-IPO shares.
Two years ago, GreenSky entered the elective health-care market. The company sees it as another “large, fragmented” industry in which “creditworthy” customers make big purchases. “We believe the elective health-care market rivals in size the home-improvement market in terms of annual spending volume, based on the number and cost of annual procedures performed,” GreenSky said in its prospectus. Providers who conduct elective surgeries include dentists, orthodontic centers and veterinarians.
The company said it’s “continually” looking into new areas that it could expand into. Those it thinks might fit the bill are “online retail, power sports, auto repair and jewelry,” according to GreenSky’s prospectus.
Working with banks
Traditional financial institutions and disruptive fintech players used to be deeply skeptical of one another. That’s not the case anymore, and GreenSky’s business model shows the power of partnerships.
The company is the originator of loans for banks and, as a result, “loans are not held on GreenSky’s balance sheet,” wrote Friedman. He said that GreenSky sees opportunity in the fact that banks can’t easily lend at the point of sale, and credit cards have high APRs.
“Prime consumers tend to use credit cards as payment, rather than financing, solutions,” GreenSky said in its prospectus. Customers tend to have “super prime” or prime credit scores.
Haslett told MarketWatch that GreenSky likely has a “compelling story to tell these regional banks” it partners with, given that those banks are looking for ways to reach customers who have good credit but aren’t eligible for a home-equity line of credit because the loans they’re getting are far too small. He said that banks probably see opportunities to eventually upsell the customers it gets from GreenSky to other products down the line, including mortgage refinancing.
Growing revenues, growing... profits!
In a rarity for tech companies going public, GreenSky has been profitable for years. The company reported $103 million in net income last year, up from $99 million a year earlier. Revenues also grew, reaching $326 million in 2017, compared with $264 million in 2016 and $173 million in 2015. Friedman models $425 million in revenue for 2018.
Haslett said the revenue trends at GreenSky indicate more of a “mature growth” story.
Low marketing spending
One other data point from the filing that struck Haslett was that the company spent just $2.2 million on sales and marketing last year, which amounts to just a tiny percentage of overall revenue. “That makes it look a lot like a tech company that’s efficient,” he said, especially “compared to something like LendingClub Corp. that has a huge marketing spend.”
Setting a trend
GreenSky has the potential to be the first big deal in the fintech space since 2016, following a relative lull. “If successful, it could result in more coming to market,” BTIG analyst Mark Palmer told MarketWatch.
Haslett said there’s a caveat there, given that the company is backed by private equity and not venture-backed. GreenSky’s IPO “will be a good check for fintech companies that are thinking about going public but won’t give the full visibility,” he said. “If CreditKarma filed, you’d have a data point that’s broader.”
There have been two fintech IPOs so far this year, with a combined deal value of $2.6 billion. In 2014, there were eight IPOs, with a total deal value of $3.1 billion.