Digital Transformation And Expanded Suites Will Drive Banking Integration

Key Takeaways

• Accelerating adoption of high-margin software modules and deepening ecosystem partnerships are driving Blend's profitability, market share gains, and operating leverage.
  
• Advanced AI automation and high client retention are solidifying Blend's position as a foundational platform for digital lending transformation.
  
• Heavy reliance on a shrinking mortgage market, limited diversification, and intensifying competition threaten Blend's revenue growth, margins, and long-term financial sustainability.

Catalysts

Provides a cloud-based software platform for financial services firms in the United States.

• Analyst consensus expects Blend's expanding product adoption within financial institutions to lift future revenue, but this likely understates the compounding effect of both accelerating market share gains in new customer segments and rising take rates per client, positioning Blend for outperformance as customers adopt multiple high-margin value-add modules and as customer penetration accelerates simultaneously across banking and mortgage verticals.
  
• While analysts broadly recognize revenue diversification into consumer banking, the significant 43% year-over-year growth and rapid adoption of products like Rapid Home Equity point to Blend becoming a foundational provider for the end-to-end digitization of consumer finance workflows across multiple large verticals, suggesting a much higher and more sustainable long-term revenue CAGR as banks and lenders consolidate vendors around platforms like Blend.
  
• The platform's shift to a high-margin, software-first operating model, accelerated by the strategic Title365 divestiture and deepening ecosystem partnerships, is set to drive substantial operating leverage and gross margin expansion, supporting major improvements in profitability and free cash flow as scale increases.
  
• The blend of persistent zero customer churn, record remaining performance obligations, and rapid post-sale client ramp-up-especially among top banks and IMBs-suggests escalating switching costs and market entrenchment, setting the stage for best-in-class client retention and long-term earnings visibility as the industry digitally transforms at an accelerating pace.
  
• Blend's early and aggressive investment in AI-driven automation, paired with unmatched domain-specific data and workflow integration, positions the company to unlock additional, material software monetization opportunities-both through internal efficiency, premium feature expansion, and industry-leading compliance tools-driving outsized net margin expansion and positioning Blend as the control point for digital lending.

Blend Labs Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Blend Labs compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Blend Labs's revenue will grow by 10.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -20.9% today to 17.7% in 3 years time.
• The bullish analysts expect earnings to reach $39.6 million (and earnings per share of $0.15) by about September 2028, up from $-35.0 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 bullish analyst cohort, the company would need to trade at a PE ratio of 60.6x on those 2028 earnings, up from -25.7x today. This future PE is greater than the current PE for the US Software industry at 35.7x.
• Analysts expect the number of shares outstanding to grow by 1.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.4%, as per the Simply Wall St company report.

Blend Labs Future Earnings Per Share Growth

Risks

• A prolonged decline in U.S. homeownership rates driven by affordability challenges, demographic shifts, and tighter lending standards could shrink Blend's core addressable market, negatively impacting long-term topline revenue growth.
  
• Persistent lack of sustainable operating profitability, as demonstrated by four consecutive quarters of non-GAAP operating profit but ongoing negative free cash flow of nine million dollars this quarter, highlights continued liquidity risk and the potential for share dilution or insolvency, directly affecting earnings per share and shareholder value.
  
• The company remains heavily dependent on mortgage and home equity products, and despite noted growth in the consumer banking suite, inability to more deeply diversify could leave Blend's revenues exposed to cyclical downturns in the mortgage market, threatening topline stability and growth.
  
• Ongoing market consolidation among major financial institutions may create price pressure as banks seek to standardize and reduce the number of software vendors, increasing the risk of margin compression and loss of market share, thus threatening Blend's net margins.
  
• The rapid push for end-to-end digital financial solutions by large technology companies alongside trends in open banking could cause Blend Labs' specialized offerings to become commoditized or obsolete, increasing competitive risk and forcing downward pressure on both revenue and net margins.

Valuation

• The assumed bullish price target for Blend Labs is $7.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Blend Labs's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.0, and the most bearish reporting a price target of just $3.5.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $224.0 million, earnings will come to $39.6 million, and it would be trading on a PE ratio of 60.6x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $3.47, the bullish analyst price target of $7.0 is 50.4% 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.