Mortgage Headwinds And Regulatory Burdens Will Constrain Prospects

Key Takeaways

• Exposure to mortgage industry cycles, client concentration, and rising compliance risks threatens both revenue stability and profitability.
  
• Competition from in-house banking solutions and rapid tech innovation may undermine long-term growth while necessitating higher investment to remain relevant.
  
• Expanding product mix, operational efficiency, and improved customer retention are driving growth, stability, and reduced risk, while innovation boosts long-term revenue visibility.

Catalysts

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

• The prolonged housing affordability crisis and stagnant homeownership rates could continue to suppress mortgage origination volumes, severely limiting Blend Labs' total addressable market and capping future revenue growth, especially as the company remains heavily exposed to cyclical downturns in the mortgage industry.
  
• Heightened regulatory tightening and increased oversight of digital financial services may drive compliance costs materially higher, compressing Blend's net margins over time and threatening the profitability gains the company has recently begun to achieve.
  
• Ongoing reliance on a handful of large financial institutions for a significant portion of Blend's revenue base introduces customer concentration risk; if a major client is lost or consolidates, this could trigger a sharp and lasting decline in recurring revenues, destabilizing future earnings.
  
• Persistent threat from large banks and technology giants developing proprietary in-house digital lending solutions may reduce demand for Blend's third-party platform, jeopardizing long-term growth and creating structural headwinds for revenue expansion.
  
• Accelerating advances in AI and automation raise the risk of technological obsolescence, forcing Blend to make increasingly substantial research and development investments merely to keep pace, which could erode operating margins and depress long-term investor returns.

Blend Labs Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Blend Labs compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Blend Labs's revenue will grow by 2.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -20.9% today to 2.6% in 3 years time.
• The bearish analysts expect earnings to reach $4.7 million (and earnings per share of $0.01) 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 bearish analyst cohort, the company would need to trade at a PE ratio of 253.8x on those 2028 earnings, up from -29.8x today. This future PE is greater than the current PE for the US Software industry at 35.0x.
• 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 8.37%, as per the Simply Wall St company report.

Blend Labs Future Earnings Per Share Growth

Risks

• Blend Labs has demonstrated four consecutive quarters of total revenue growth and non-GAAP operating profitability, suggesting it has achieved greater operational efficiency and a more stable cost structure, which could support stronger net margins and sustained earnings growth over the long term.
  
• The company is reporting accelerating sales momentum, with 23 new or expanded deals in the quarter-double the previous quarter-including competitive takeaways and large strategic wins such as multi-year contracts with top 5 independent mortgage banks, which are helping to drive its remaining performance obligations to an all-time high of 190 million dollars, supporting future recurring revenue visibility.
  
• Blend Labs' diversification into consumer banking products is producing robust results, with consumer banking suite revenue growing 43 percent year-over-year and now representing 36 percent of total revenue, which not only drives higher overall revenue growth but also reduces cyclicality risk tied to the mortgage market.
  
• Blend's continued investment in product innovation, especially in AI-driven automation, new solutions like Rapid Refi and Blend Close, and its partnership ecosystem, is allowing the company to increase value per funded loan over time, potentially leading to higher gross profit per customer as these solutions become more widely adopted.
  
• The company's customer retention has dramatically improved, with churn notices declining by 70 percent in 2024 and zero churn so far in 2025, indicating a highly loyal and sticky customer base that supports stable recurring revenue and lowers downside risk to future earnings.

Valuation

• The assumed bearish price target for Blend Labs is $3.5, which represents the lowest 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 more bearish 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 bearish analysts, you'd need to believe that by 2028, revenues will be $182.8 million, earnings will come to $4.7 million, and it would be trading on a PE ratio of 253.8x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $4.03, the bearish analyst price target of $3.5 is 15.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.