Mogo (MOGO.T) transitions from flop to fire with shift into mortgages

Queue the LL Cool J: Don’t call it a comeback, they’ve been here for years.

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Well, two.

You have probably seen their ads in the press with the tagline, “Manage Your Finances with Benefits,” since they’ve been a major and ongoing print advertiser for months. Their niche? Poor, downtrodden millennials who have shitty credit and can’t get a loan or obtain a credit card off the tips they earn slinging pints on Commercial Drive.

When Mogo first emerged, boasting that you could get loans through them online at as little as 4.9% interested, it was on the back of an extended President’s Club marketing campaign, a hefty $50 million IPO, and strong institutional support.

But it didn’t take long for things to start splitting at the seams. The $9 stock quickly became a $2.30 stock as that early paper started peeling off, marketing costs bloated, and it was burning through cash at around $19m per quarter through 2015.

With the dubious honour of being seen as the IPO disaster of 2015, you’d be justified in rolling your eyes whenever you hear it mentioned.

In fact, I wrote a piece about the company last year while at Stockhouse that railed against the thing for qualifying me for a “$5000 loan at an interest rate of ‘just’ $29%.”

But.

Mogo stood. In fact, the Mogo crew stemmed the bleeding, eventually, and began adding products.

The stock was pounded down until around October of last year when the miraculous happened. She hit bottom. A low of around $1.20, and a market cap of under $20 million, was either going to be a launchpad or a final hurrah. It’s turned out to be the former.

Then news they issued October 18 shook the stock markets, and slapped it hard in the face and began a recovery that may just point to Mogo as a thing you wouldn’t want to burn with fire.

October 18, 2016 (Vancouver, BC) – Mogo Finance Technology Inc. (“Mogo”) (TSX: GO) announced today that it has surpassed 300,000 Mogo members. The Company has seen accelerated member growth since the launch of its new digital account and mobile app, including an additional 50,000 new member accounts since announcing it reached 250,000 members last month.

“We are acquiring new members faster than we anticipated based on the combination of a successful mobile app launch and the significant marketing push through our Postmedia partnership,” said Dave Feller, Founder and CEO of Mogo. “This member growth underscores the viral effect of our new app, the power of a great user experience, and the appeal of our value proposition which includes free credit score monitoring.”

Revenue for the third quarter of 2016 was $12.6 million, a 9% increase from the third quarter of 2015. Within this, loan interest and other revenue increased a combined 67% to $6.4 million, driven by the success of focusing on the growth of installment loans and line-of-credit products.

  • Gross profit grew 5% to $7.6 million (60% of revenue) from $7.2 million (63% of revenue) in the third quarter of 2015.
  • Achieved positive adjusted EBITDA of $0.5 million in the third quarter of 2016. This represents the Company’s first positive adjusted EBITDA since its IPO in 2015 and the fourth consecutive quarter of improvement of adjusted EBITDA and a $3.7 million year over year improvement compared to ($3.2) million in the third quarter of 2015. This was driven by continued benefits of increased scale as well as operating efficiencies, including an 18% decrease in general and administrative expenses and a 34% decrease in marketing expenses, compared to the second quarter of 2016.

This month they have surpassed 350,000 customers and became the first Canadian company to offer digital spending managed through a mobile app, which can be opened for free in less than three minutes. The spending account comes with a Platinum Prepaid Visa card that is Chip/PIN and Paywave enabled.

To me, what’s set Mogo on strong footing is their shift into mortgages. While payday loan styled borrowing through a website is something that will eventually turn a profit, mortgages are a business proper.

And it appears others are agreeing. Unlike the pump and spend origins of the company, the second wave of Mogo appears to be building a financial business on the back of products instead of ‘ads for equity’ marketing deals.

The news flow of the last week out of Mogo has been fairly stellar, and since February 13, the stock price has rocketed from $2.40 to $3.60, a 50% jump.

Whether that jump has finished or not is open to debate. Several analysts, including BMO, have given the company price targets of $3-$3.25, which it has already passed.

Moves to game-ify borrowing, such as offering free meals upon payment milestones and a delivered bottle of champagne upon closing are fun but ultimately irrelevant. Anyone choosing to take out a mortgage because they’ll get a bottle of champagne out of it will likely struggle to survive the weekend without walking into traffic, let alone pay off a mortgage in 25 years.

But there’s a business here. And it only cost the company $50 million to find it.

Early investors’ loss is your potential gain. Observe closely.

— Chris Parry

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