Blockchain Adoption And Tokenized Credit Marketplace Will Drive Long Term Business Expansion

Catalysts

About Figure Technology Solutions

Figure Technology Solutions operates a blockchain based marketplace that originates, finances and trades consumer and real world credit assets in a capital light, fee driven model.

What are the underlying business or industry changes driving this perspective?

• Rapid migration of home equity and first lien mortgage activity onto Figure Connect, combined with partner branded volume growth, should keep ecosystem fees expanding while mix shift supports structurally higher EBITDA margins and earnings.
• Broader institutional adoption of tokenized credit and real world assets, evidenced by AAA rated securitizations and new programmatic buyers such as sovereign wealth funds, positions marketplace volumes and securitization fees to scale faster than operating expenses, lifting revenue and net income.
• Growing demand for blockchain native funding and the flight of deposits toward stablecoins are likely to accelerate usage of Democratized Prime, increasing high margin, capital light funding volumes that enhance net margins and cash generation.
• Deployment of the YLDS yield bearing stablecoin into large developer ecosystems like Solana and Sui should create new distribution rails and collateral use cases that drive incremental fee revenue and diversified earnings streams over time.
• Expansion of Figure’s partner network across credit unions, mortgage servicers, SMB lenders and other fintechs, along with low incremental technology costs per new product, should support sustained double digit volume growth and operating leverage, improving both revenue scale and EBITDA margin.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Figure Technology Solutions's revenue will grow by 36.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.7% today to 40.7% in 3 years time.
• Analysts expect earnings to reach $391.9 million (and earnings per share of $1.46) by about December 2028, up from $56.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $433.4 million in earnings, and the most bearish expecting $342.9 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 42.1x on those 2028 earnings, down from 151.4x today. This future PE is greater than the current PE for the US Consumer Finance industry at 9.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.06%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The strategy depends heavily on continued rapid adoption of blockchain rails and tokenized real world assets by traditional capital markets participants. If institutional demand for blockchain based securitizations, DeFi funding and tokenized equity stalls or reverses, marketplace volumes and associated fee revenue could undershoot expectations and compress earnings growth.
• Democratized Prime and YLDS are central to the long-term vision, but they operate in a macro environment where stablecoins, DeFi and bank funding are drawing increasing regulatory scrutiny. Adverse regulation on yield bearing stablecoins, DeFi lending or on chain equity could constrain product growth, slow ecosystem velocity and cap EBITDA margin expansion.
• The model relies on maintaining a significant technological and data integrity lead over competing fintechs and incumbents in HELOC, first lien and adjacent credit markets. If rivals close the gap with comparable automation, alternative capital markets or tokenization frameworks, Figure may face pricing pressure, lower take rates and weaker net margins over time.
• The capital-light marketplace thesis assumes a deep, reliable pool of on chain and institutional liquidity through Figure Connect and Democratized Prime. If funding costs rise, liquidity providers pull back or securitization appetite weakens during a credit downturn, origination partners could reduce volumes, depressing revenue and limiting operating leverage.
• The company is rapidly expanding into multiple products and ecosystems, including SMB lending, DSCR loans, cross chain YLDS deployment and blockchain native equity. Execution missteps, technology failures or credit performance issues in any of these newer verticals could damage partner trust, slow volume growth and lead to lower earnings and valuation multiples.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $49.88 for Figure Technology Solutions based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $56.0, and the most bearish reporting a price target of just $40.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $962.3 million, earnings will come to $391.9 million, and it would be trading on a PE ratio of 42.1x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $39.76, the analyst price target of $49.88 is 20.3% 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.