Real Time Data And Automation Will Reshape Digital Lending

Key Takeaways

• Enhanced data integration, automation, and machine learning are expected to boost operational efficiency, risk management, and profit margins for sustained stability.
  
• Expanding partnerships and digital lending growth position Open Lending for strengthened market share and reliable long-term revenue gains.
  
• Structural demand headwinds, partner concentration, declining loan profitability, rising regulatory pressures, and shifting auto lending trends threaten long-term revenue growth and margin expansion.

Catalysts

Provides lending enablement and risk analytics solutions to credit unions, regional banks, finance companies, and captive finance companies of automakers in the United States.

• The integration of real-time alternative data sources (like TransUnion) and enhancements in predictive modeling are expected to allow Open Lending to better price and segment loans, improving risk-adjusted pricing and leading to higher net margins and more stable, predictable earnings in 2026 and beyond.
  
• Strengthening recurring partnerships, exemplified by the early multi-year extension with AmTrust and ongoing expansion with credit unions, underpins Open Lending's network effect and will likely support long-term revenue growth and increased market share.
  
• Accelerated investment in automation and data analytics-especially machine learning for claims and risk analysis-should drive further operational efficiencies and lower loss ratios, resulting in improved net margins as cost reductions are realized fully in 2026.
  
• The secular expansion of digital lending and the ongoing push for greater financial inclusion among underserved and non-prime borrowers continue to expand Open Lending's addressable market, positioning the firm for sustainable long-term loan volume and revenue growth.
  
• Rising auto loan refinancing activity, driven by lower interest rates and improved credit union financial health, creates a near-term catalyst for increased transaction volumes, directly supporting a rebound in revenue and earnings starting in 2026.

Open Lending Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Open Lending's revenue will grow by 117.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -869.6% today to 18.7% in 3 years time.
• Analysts expect earnings to reach $31.4 million (and earnings per share of $0.12) by about August 2028, up from $-141.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, up from -1.8x today. This future PE is lower than the current PE for the US Capital Markets industry at 26.7x.
• Analysts expect the number of shares outstanding to decline by 0.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.55%, as per the Simply Wall St company report.

Open Lending Future Earnings Per Share Growth

Risks

• Ongoing declines in certified loan volume, driven by both deliberate tightening of underwriting and lower OEM business, risk creating a structurally lower revenue base if demand does not recover as expected-this could impede both topline growth and future earnings potential.
  
• Heavy reliance on a few large partners (notably AmTrust), along with revenue concentration in credit unions and OEMs, makes Open Lending vulnerable to revenue disruption should key partners change terms, insource analytics, or exit-negatively impacting revenue stability and growth.
  
• Falling profit share unit economics per certified loan (from $552 to $289 year-over-year) reflect higher loss expectations and diminished profitability per transaction, which threatens net margins and could hamper long-term earnings expansion if loss ratios do not continue to improve.
  
• Heightened regulatory focus on fintech underwriting and auto lending, plus potential data privacy constraints, may escalate compliance and operational costs, limiting scalability and compressing future net margins.
  
• Secular trends reducing traditional auto loan demand-such as increased EV adoption, evolving mobility preferences (e.g., ride-sharing over ownership), or OEMs moving toward embedded finance/direct lending-could diminish Open Lending's total addressable market and challenge its long-term revenue trajectory.

Valuation

• The analysts have a consensus price target of $2.967 for Open Lending 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 $4.0, and the most bearish reporting a price target of just $2.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $167.6 million, earnings will come to $31.4 million, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 9.6%.
  
• Given the current share price of $2.16, the analyst price target of $2.97 is 27.2% 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.