The first Canadian online lender to go public is struggling to appeal to investors.
Since launching an initial public offering priced at $10 a share just over a month ago, Mogo Finance Technology Inc. shares have steadily slid to about $6.
But the two analysts who follow the stock believe it will rebound on the strength of the company's ambitious growth plans.
"The bottom line is that we are excited by Mogo's growth prospects, with the funds from the IPO alongside a pending increase in debt funding set to fuel the firm's business plan," Cormark research analysts Jeff Fenwick and Richard Tse said in a recent research note. They have a "buy" rating on the stock with a price target of $11.25.
Analysts at Canaccord Genuity are also anticipating huge growth from Mogo's platform and are recommending investors purchase shares, with their target matching the IPO price.
"As Internet technology advances, borrowers will likely demand a faster and more cost-effective lending process, which is increasingly moving toward online and mobile-based platforms," said Canaccord analyst Scott Chan.
Mogo has already been operating for 10 years. It processes 30,000 loans a month, including personal loans of up to $35,000. It also offers shorter-term loans that are similar to payday loans, although at half the rate of most payday lenders.
With plans to further take advantage of growing demand among consumers for online loan offerings, the company launched the $50-million IPO on June 25. The company is also tapping debt financing that could total as much as $100-million.
"After having invested over $80-million in building out the business, we felt that we were at the right stage in terms of platform, product, revenue and growth to become a public company," Dave Feller, CEO of Mogo, said in an interview. "Also, the added benefits of increased exposure and awareness of our brand as we look to build a trusted financial brand in Canada."
The firm's revenue has already been on a steep upward trajectory. First-quarter revenue of $9.1-million was up 161 per cent from a year earlier. Mogo now expects to grow revenue by 100 per cent in each of the next two years from its existing product offerings of long- and short-term loan products.
Mogo isn't the only online lender to go public. Last fall, U.S. firms On Deck Capital Inc. – which also has Canadian clients – and Lending Club Corp. launched IPOs. Similar to Mogo, investors in those stocks are worried about both competitive and regulatory risks in the burgeoning disruptive online lending industry. The two stocks are down 60 per cent and 46 per cent year to date, respectively.
"As the space becomes increasingly more competitive, revenue growth and profitability targets could be [affected], lowering valuation multiples," said Mr. Chan in a research note.
Meanwhile, there could be an increase in regulatory risks as the industry expands. The U.S. Treasury Department is actively seeking public comments about the industry, which could lead to potential new regulations governing participants in the U.S. In Canada, regulators are looking at peer-to-peer lending and have suggested that providers may be subject to regulation and could even be required to register as investment dealers.
But the analysts insist Mogo's plans to launch new products, grow existing product lines, and target a wider audience will result in a robust pace for revenue growth.
The company plans to expand into small business loans and mortgage products, as well as shifting into the ever-growing popular segment of marketplace lending.
"We are finding customers increasingly want access to other products delivered with the same level of convenience and transparency," Mr. Feller said. "This is where the market is going, especially for the millennial generation – they will want their financial solutions delivered digitally, on demand."
Mr. Feller says the financial industry still hasn't seen the full impact of what so called fin-tech companies will bring.
"According to the millennial disruption index (a three-year financial services study conducted by Viacom Media Networks), banks are most likely to be disrupted by millennial consumer preference," said Mr. Chan. "Mogo has built a financial services platform with the target of evolving into a next generation bank."