Magazine article American Banker

E-Loan Beats Forecasts but Sales Trends Spur Concern

Magazine article American Banker

E-Loan Beats Forecasts but Sales Trends Spur Concern

Article excerpt

The online lender E-Loan Inc. has beaten analysts' earnings estimates for the seventh straight quarter, but revenue was disappointing and analysts expressed concern about its future sources of income.

The Dublin, Calif., company said Thursday that it lost $2.2 million, or 4 cents per share, excluding certain charges, in the second quarter -- 3 cents less than the First Call consensus estimate. It had lost $9.7 million, or 22 cents per share, a year earlier.

Revenue for the latest quarter was $15.2 million, up 79% but less than the $16 million expected. The company said again that it would break even in the fourth quarter.

Improved operating efficiency and lower marketing costs helped in the second quarter, but pressure on auto lending hurt revenues. The company faced increasing competition from the likes of GMAC and Ford Motor Credit for financing new car purchases.

Mortgage refinancing business was strong, though, bolstered by lower interest rates.

The opposite pattern prevailed late last year, noted Richard Zandi, an analyst at Deutsche Bank in New York. "Three quarters ago, when the mortgage market wasn't doing so great for them, the auto business was great, and this quarter the auto market wasn't great but the mortgage market was good."

Auto loan revenue of $2.1 million represented 14% of total revenue in the second quarter, down from 32.5% ($5.3 million) in the first quarter and 35% in the fourth, Mr. Zandi said.

Chris Larsen, E-Loan's chairman and chief executive officer, said the company is not worried about a decline in one business line. In fact, he said, that is accounted for in its business plan.

E-Loan employs a "three-legged stool approach," he said, consisting of three distinct business lines -- mortgage, auto, and home equity loans -- which serve to counterbalance a falloff in any one business. For example, lower interest rates hurt new car financing but help mortgage refinancing; this will work the other way when rates go back up and refinancing falls off, but home equity and auto lending make a comeback, he said.

"We always expect that one of the units will be weaker, but two of the units will be doing well, which is the exactly the case we had in the second quarter," Mr. …

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