Rival Pressure Will Challenge Digital Lending And Spark Hope

Key Takeaways

• Ongoing competitive and regulatory risks could erode Wisr's product advantage and limit both revenue scalability and earnings growth.
  
• Dependence on external funding and aggressive loan growth may increase vulnerability to capital market shifts and credit risk, impacting future margins and profitability.
  
• Wisr's growth and profitability are vulnerable to adverse macroeconomic shifts, funding constraints, competition, credit quality issues, and a lack of diversification beyond lending.

Catalysts

Engages in the lending business in Australia.

• While Wisr has demonstrated accelerating digital adoption through the automation of 80% of loans and improvements to its arrears management platform (supporting greater operating efficiency and reduced credit losses), there is a real risk that ongoing technological disruption by larger competitors and rapid innovation could erode Wisr's product advantage and compress net margins over time.
  
• Despite benefiting from a continued shift away from traditional banking (with major bank market share in personal lending falling from 73% to 58% over five years) and rising customer preference for digital-first lending, Wisr remains exposed to the possibility that tightening lending standards or increased regulatory scrutiny may curb future loan growth, directly impacting revenue scalability.
  
• Although Wisr's platform investments have driven notable improvements in NIM, credit performance, and operational leverage, sustained high growth in the loan book could lead to increased credit risk if macroeconomic conditions deteriorate or if origination quality slips, putting future net earnings at risk.
  
• While Wisr possesses large addressable markets and a diversified distribution network, its dependence on external funding sources and ABS markets introduces vulnerability to changes in capital availability or higher funding costs during downturns, which could constrain growth and pressure net interest margins.
  
• Although Wisr outlines ambition to diversify into adjacent financial products to drive additional revenues, the persistent threat of larger technology or fintech entrants moving into these adjacent spaces may limit Wisr's market share upside and ability to increase per-customer revenue, leaving long-term earnings power uncertain.

Wisr Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Wisr compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Wisr's revenue will grow by 83.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -28.1% today to 4.1% in 3 years time.
• The bearish analysts expect earnings to reach A$6.6 million (and earnings per share of A$0.0) by about September 2028, up from A$-7.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 19.9x on those 2028 earnings, up from -6.7x today. This future PE is greater than the current PE for the AU Consumer Finance industry at 11.7x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.53%, as per the Simply Wall St company report.

Wisr Future Earnings Per Share Growth

Risks

• There is a risk that future loan growth is highly dependent on favorable macroeconomic factors such as consumer sentiment, strong employment, and loose monetary policy, so any deterioration in these areas could slow origination growth and reduce future revenues and profitability.
  
• Funding growth relies on continual access to warehouse and term debt facilities; should capital markets tighten or funding costs rise due to external shocks or a higher interest rate environment, Wisr could face margin compression or restrictions to its lending capacity, directly impacting net margins and future earnings.
  
• Although automation and technology investments have improved efficiency, larger incumbents with even deeper resources may accelerate their own adoption of AI-driven underwriting and automation, potentially threatening Wisr's market share and long-term cost competitiveness, which could erode operating leverage and future net margins.
  
• Persistent high levels of consumer indebtedness or a deterioration in credit quality across the industry could lead to increased arrears and default rates, forcing Wisr to raise provisions or tighten lending standards, impacting loan book growth and diminishing net earnings.
  
• The company's current growth trajectory is framed as recovering back to prior peaks, and the outlook depends on continued expansion within core markets and distribution channels; if market saturation or competitive pressures emerge before Wisr can diversify into meaningful non-lending revenue streams, future revenue growth may stall and depress long-term profitability.

Valuation

• The assumed bearish price target for Wisr is A$0.07, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Wisr's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$0.13, and the most bearish reporting a price target of just A$0.07.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be A$159.6 million, earnings will come to A$6.6 million, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 11.5%.
• Given the current share price of A$0.03, the bearish analyst price target of A$0.07 is 47.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.