Blend’s rough Q4 earnings report spurs lowered expectations for 2022

Following substantial losses in the fourth quarter, and greater declines in its first year as a public company, mortgage technology provider Blend has lowered its expectations for 2022.

Blend's fourth quarter net loss increased to $71.7 million from just under $16 million one year ago. For the full year 2021, Blend lost $171.3 million, compared with $74.6 million in 2020. The company went public on July 16, 2021. While it launched at a price of $20.90 per share, at deadline it was trading at $4.75 per share.

"During 2021, Blend incurred increasing customer deployment and implementation costs associated with rolling out products like LO Toolkit to our growing customer base," Marc Greenberg, the company's head of finance, said during the company’s earnings call. "During fourth quarter 2021, a higher volume of this activity negatively impacted Blend's platform gross margins."

As it achieves greater scale across multiple products in the customer base, any adverse impact on margins should diminish, Greenberg continued.

The results showed growth when only considering revenue. The company reported fourth quarter revenue of $81 million. The Blend Platform contributed $36.5 million, up 19% from the same period in 2020. Title365 added $44.4 million; Blend completed its purchase of the business from Mr. Cooper's Xome unit on June 30, 2021.

Revenue guidance provided by Blend Labs executives for the year ahead is "much lower" than analyst consensus estimates since the company has to navigate its refinance-heavy title business through higher mortgage rates, they said.

"We have reflected the estimated negative impacts of the lower loan origination environment along with the knock-on effects of the volume-related slowdowns in new product adoption into our 2022 guidance," Nima Ghamsari, the company's co-founder, said during Blend Labs' fourth quarter earnings call. "As a result, we believe that this guidance range represents an achievable baseline revenue expectation for Blend in 2022."

For the Blend Platform segment, the company is guiding to $140 million to $150 million for this year and $90 million to $100 million for the Title365 business, for a total of $230 million to $250 million. The consensus was for $348 million, while the analysts at Keefe, Bruyette & Woods were expecting $310.4 million.

However, Blend expects revenue in its consumer banking and marketplace solutions business will grow by more than 100% in 2022; that includes the transition of approximately $15 million of legacy Title365 revenue to the new Blend Title platform, Ghamsari said.

The difference in the revenue estimates appears mostly driven by a larger drop-off in mortgage origination volume than previously expected, which particularly affects Title365's refi-heavy business. But weaker growth in consumer banking and marketplace revenue also contributed, said KBW analyst Ryan Tomasello in a research report.

Going forward, Blend has value-creating high-revenue products in its pipeline as well, Ghamsari said.

"While management noted it is taking a comprehensive review of its cost structure and investment priorities, specific details were lacking," Tomasello said. "Despite near-term volume headwinds as the mortgage market resets, management commentary around client demand and its various growth initiatives was upbeat."

Title365's revenue since the acquisition date was approximately $98.9 million, and net income was approximately $7.8 million, a Securities and Exchange Commission filing said.

Blend's year-end SEC filing contained a "material weakness" disclosure regarding the Title365 transaction. When asked about it on the call, Greenberg commented it was limited to a related intangible asset valuation from the deal. "It wasn't core to our operations and [had] no impact on cash, no impact on non-GAAP results," he added.