August 7, 2015
Kensington Blake Capital’s Managing Principal Brian Zwerner serves as Chief Executive Officer of Provider Web Capital, one of the leading finance providers to the healthcare small business market. He is witnessing firsthand the growth of non-bank finance companies lending to small businesses across all industries. Recently OnDeck Capital, one of the leaders across all small business industries, reporting earnings for the 2nd quarter.
While OnDeck achieved record gross revenues of $63.3MM in the quarter, the market did not cheer their results. Shares of the lender were quickly down over 20% and not sit well below the December IPO price at only $9.18. The market value of the company has fallen to only $630MM, after originally reaching just under $2 Billion.
OnDeck’s earnings release cheered its 78% revenue growth from last year’s second quarter. They also reported that net income jumped significantly from $1.5MM last year to $7.3MM this quarter. Origination volume at $419MM for the quarter was up 69% from the same quarter last year. OnDeck has also reduced its role as a balance sheet lender, selling off 34% of their volume for the quarter to third party investors. This trend should allow them to achieve higher multiples in the long run but has hurt short term earnings due to lower spread income.
The biggest problem with OnDeck’s results was the stagnation of their origination volumes. The $419MM number for the quarter was essentially unchanged from the $416MM in Q1 2015. OnDeck reported missteps in their marketing strategies which led to wasted expenses that did not produce results. They also reported a need to re-train some of their third party referral partners, which also hurt growth.
Provider Web Capital did not experience similar problems. The younger business is still in a heavy growth phase, with over 50% quarter over quarter origination growth. Provider Web’s specialized financing product better fits the needs of the healthcare market it serves, which is leading to many new customers and great results. Look for Provider Web to continue to take share from OnDeck and other established players.
Commentary by Brian Zwerner, Managing Principal, Kensington Blake Capital, LLC.
Please see quarterly earnings release from OnDeck Capital:
Please see article from Motley Fool reviewing OnDeck’s results: