E-Loan Inc., the Dublin, Calif., company that sells mortgages, auto loans, credit cards, and small-business loans on the Internet, announced improved financial results for the fourth quarter, beating analysts estimates for revenues and losses.
Though the picture was bright, it was clouded somewhat because E-Loan tied its success to a surge in home refinancings, which were spurred by falling mortgage rates and are not expected to continue long.
E-Loans revenues for the fourth quarter were $11.3 million, up 47% from the $7.7 million reported the year earlier. Analysts had expected revenues of $9 million to $10 million. The company had a net loss for the quarter of $6.5 million, or 12 cents per share, compared with a loss of $12.2 million, or 29 cents per share the year earlier. Analysts consensus was for a 15-cent loss.
E-Loans stock price was $3 at Fridays close, up 26% for the week.
In the fourth quarter, E-Loan sold $344.8 million of mortgage loans, an increase of 23% in dollar volume from the third quarter. Of its total revenue, $6.9 million, or 61%, was mortgage-related.
It was also a banner quarter at E-Loan for auto loans. The company sold 15,680 auto loans, for dollar volume of $321 million, an increase of 190% from the year earlier and 71% from the third quarter.
About half the fourth-quarter mortgage revenue came from refinancings spurred by falling rates, said Chris Larsen, E-Loans chief executive officer. Mr. Larsen said he expects the refinancing surge to last a quarter and then trail off.
Michael S. Hodes, an analyst and vice president at Goldman, Sachs & Co. in New York, said that though E-Loan is positioned to benefit from the surge in refinancing, down the line as that business ultimately trails off, the company will once again face the challenge of driving growth through buying home mortgages.
Consumers may feel less comfortable about getting a mortgage online than about refinancing one, according to some analysts.
Refinanced mortgages are a lot friendlier to the Internet than a person purchasing a mortgage for the first time, said Richard H. Repetto, an analyst and senior vice president at Putnam Lovell Securities in New York. People who have already been through the process know all they have to do is reduce their rate.
The same is true for auto loans, he said, where customers are just looking for the lowest monthly payment.
Most people wont go to the Internet to get a mortgage for the first time because, its a big decision, theres a lot of paperwork involved, and people need advice, Mr. Repetto said. In addition the process is not fully automated.
Mr. Repetto said more people will buy mortgages online when the entire process becomes electronic. Once these other parties convert over to electronic and it wont happen overnight but if you can do a fully electronic mortgage, you can squeeze the time it takes from 30 or 45 days down to 5 or 10, that is a lot of cost savings and convenience, he said.
Mr. Larsen said what may inhibit people from going online to buy mortgages is not their own discomfort with the Internet but the interference of third parties such as real estate brokers, who are at best neutral on online business and might take time getting comfortable directing their own customers to the Internet.
Auto lending and home refinancings are getting traction because they are easy to do online. In the home mortgage case, it is still a more complex process, he said. The more complexity you have, the more opportunities for an offline player or third party to divert the process offline.
Mr. Repetto said E-Loans auto loan approval rate for the fourth quarter jumped to 40%, double that of the previous quarter, because the company diversified its auto lending network by adding the likes of Americredit Corp., Wells Fargo & Co., and GE Capital in the second and third quarters.
The multilender platform increases approval rates because they can accept a much wider credit spectrum, Mr. Repetto said.