When Elevate Credit tried going public early last year, the prospect of a subprime lender selling a growth story to investors was such a nonstarter that the offering was pulled just before the expected offering. It didn't help that the stock market was tanking around that time.
This time Elevate was able to get out, debuting on Thursday on the New York Stock Exchange. But it had to slash IPO price by about half to $6.50 a share from a previously expected range of $12 to $14.
Elevate is an online lender to nonprime borrowers, combining user-friendly websites with software-based underwriting to offer more favorable rates than what consumers can find at storefront payday lenders. Its gross revenue increased 34 percent last year to $580.4 million and operating income surged fivefold to $47.8 million.
Still, investor enthusiasm is muted. After Snap and MuleSoft priced above their expected range in recent tech IPOs, Elevate's price cut shows that Wall Street hasn't regained its appetite for subprime lending nearly a decade after subprime mortgage lending practices contributed to the worst recession since the Great Depression.
"Serving nonprime customers is hard," said Ken Rees, Elevate's CEO, in an interview after the debut. "You've got to be really smart and have really great analytics."
Rees preferred not to talk about the IPO price, saying that "the market is the market," and instead focused on the stock's rise after the open — it jumped 18 percent to $17.54 as of midday. Bankers generally set offerings below the market price so the stock can celebrate a first-day pop.
Even with the rally, Elevate's stock market value of around $300 million means it's trading at about half of last year's revenue, well below the price-to-sales ratios of online lenders On Deck and Lending Club. Venture firm Sequoia capital is Elevate's biggest shareholder, with a stake currently valued at about $56 million.
Rees said that when he was on the initial roadshow in early 2016, the business of issuing subprime loans "was very much a question." But he said there's been a "sea change" in thinking that started during the presidential election season and Donald Trump's victory.
"The surprise election highlighted to people that there's a dissatisfied, deeply underserved community that needs more focus and needs better offerings," he said.
While Elevate can't ignore investor concerns around all things subprime, the company is able to show that its business held up even as scores of mortgage lenders and banks were swept away last decade.
Elevate's charge-off rate from 2006 to 2011 held at between 18 percent and 19 percent, "compared to credit card charge-off rates, which nearly tripled during the same period," the company said in its prospectus.