GM. This is Milk Road, your shortcut through the fine print of the crypto world.
Here’s what we’ve got for you today:
- ✍️ Is this crypto stock about to 2x?
- 🎙️ The Milk Road Show: Figure May Have Found Crypto’s Killer Use Case.
- 🍪 Scott Melker: "…most people are not going to make it…”
Prices as of 2:00 p.m. ET. Powered by CoinGecko.
Q2 REPORT: FIGURE CHARGED LESS AND MADE MORE 💸
Figure Technology (FIGR) took a smaller cut out of every loan dollar it handled last quarter, compared to a year ago.
Yet it made more money on each loan anyway.
The net take rate (Figure’s cut of each loan) slid from 4.0% to 3.6%, while its adjusted EBITDA margin (profit before interest, tax and accounting charges, as a share of revenue) went the other way, hitting 54.6% against 47.2% a year ago.
Which almost never happens in a marketplace business.
Normally you cut your prices to win volume, and you eat the difference out of your own profits.
Figure managed both at once, and the rest of the report followed:
- Loan volume: $4.26B, up 132%.
- Net revenue: $226M, up 113%.
- Net income: $87M, up 192%.
- Adjusted net revenue: $218M against the ~$208M analysts expected.
- Diluted earnings: $0.35 per share against $0.23 expected.
As we mentioned last week, Figure's volume was pre-announced ahead of this report, so the only open questions were margins and guidance.
(Both landed smoothly.)
So how does a business charge its customers less and keep more of it?
The product doing most of the work here is Figure Connect.
It's a marketplace where outside lenders (mortgage banks, credit unions, fintechs) bring their own borrowers and use Figure's rails to record, fund and sell the loan.
It hit 65% of all marketplace volume last quarter, up from 42% a year ago (that's $2.77B of the $4.26B in volume).
And that's where the lower price comes from: Figure never pays to go find those borrowers, because the partner already did.
So it can charge them less and still keep more of what it charges.
The cost of running each loan is falling too. Operations and processing came in around 67 basis points of loan volume (a basis point is one hundredth of a percent), down from 79 a year ago.
489 lenders now originate on Figure's system, 102 of which were added in Q2 alone.
Whichever one wins the borrower, the loan still gets recorded, funded and traded across Figure's rails.
That said, it’s worth remembering that lending is an underwriting business before it's a technology business, and none of this has been through a full default cycle yet. A defaulted home equity loan goes through the same courts on the same timeline no matter where the lien was recorded, and tokenizing it changes none of that.
What tokenizing does change is the cost of moving a loan and how many buyers can bid for it.
And that part is turning up in real prices.
S&P and Moody's have both put AAA on Figure securitizations (bundles of loans sold on to investors as bonds), and the spread Figure pays on those AAA slices has tightened from ~255 basis points in 2023 to ~135 today.
Cheaper funding, cheaper processing, and partners covering the cost of finding customers.
That's a beautiful flywheel. 🥲
From here, Q3 volume is guided to $4.8B-$5.2B, and management is targeting a 60% adjusted EBITDA margin by 2028.
What we want to see from here:
Partner share continuing to climb, while the cost of each loan keeps falling.
Btw - if this setup sounds familiar, it should.
Our lead analyst, M0xt, first bought FIGR at $25.34 back in February, when Figure Connect was only 54% of volume and he called the marketplace the entire thesis.
He's been adding on the dips ever since, which puts his average entry around $31.50.
The stock is still sitting right about there.
I.e. six months later, you can buy it within pennies of where he's been buying it, while the average analyst target sits around $50 (Bernstein's is at $70).
Don’t miss his next entry! Try Milk Road PRO for a buck for 7 days and you'll get notified of his next buy, the moment he makes it.
BITE-SIZED COOKIES FOR THE ROAD 🍪
Scott Melker: "Most people are idiots and don't learn from their mistakes." "So most people are not going to make it, unfortunately."
Michael Saylor: "The real profound breakthrough of Bitcoin is this idea that you can take economic energy, convert to digital form,” and tightly bind it to a single entity.
Blue Macellari: "From the launch of the first Bitcoin ETFs… we had non-stop great news… it's impossible to sustain that type of constant transformational news flow."
MILKY MEMES 🤣
ROADIE REVIEW OF THE DAY 🥛
VITALIK PIC OF THE DAY
