Blockchain Adoption And Capital Light Marketplace Model Will Ultimately Disappoint Expectations

Catalysts

About Figure Technology Solutions

Figure Technology Solutions operates a blockchain based marketplace that connects consumer credit originators and capital providers through fee based, capital light platforms.

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

• The business depends heavily on continued adoption of blockchain rails for consumer credit and real world assets. Any slowdown in banks, credit unions and institutional buyers embracing on chain structures could limit ecosystem volume growth and fee revenue.
• The push to expand Democratized Prime as a core funding venue introduces execution and adoption risk. An inability to attract sufficient, stable capital relative to the billions of dollars of potential on chain assets could compress take rates and constrain earnings.
• The plan to extend the model beyond home equity into first lien, SMB, DSCR and other asset classes requires ongoing product build and partner onboarding. If these newer verticals scale slower than expected, overall revenue growth and margin expansion targets could be pressured.
• The strategy to tie YLDS and tokenized assets into multiple blockchains such as Sui and Solana increases technical and regulatory complexity. Any disruption or regulatory shift affecting stablecoins or DeFi funding could affect liquidity flows and Figure’s fee based revenue streams.
• The ambition to put equity on chain and build new capital markets infrastructure around blockchain native securities is unproven at scale. If buy side and issuer adoption of these products remains limited, the company may carry higher technology and compliance costs without a matching uplift in EBITDA margins.

Assumptions

This narrative explores a more pessimistic perspective on Figure Technology Solutions compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Figure Technology Solutions's revenue will grow by 38.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 14.7% today to 39.9% in 3 years time.
• The bearish analysts expect earnings to reach $407.1 million (and earnings per share of $1.49) by about January 2029, up from $56.2 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $618.1 million.
• 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 34.8x on those 2029 earnings, down from 239.3x today. This future PE is greater than the current PE for the US Consumer Finance industry at 9.0x.
• The bearish 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 7.94%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Figure is already reporting strong profitability, with adjusted EBITDA of US$86 million, a 55.4% EBITDA margin and net income of nearly US$90 million in the quarter. If these margins stay resilient or improve as more volume moves to fee based, capital light marketplaces like Figure Connect and Democratized Prime, earnings could remain robust rather than contract, supporting revenue, net margins and overall earnings.
• The partner ecosystem is broad and expanding, with nearly 250 third parties, growth in first lien HELOCs, new SMB and DSCR products, and a growing pool of institutional buyers including a sovereign wealth fund. If this network effect continues to deepen it could support ecosystem volumes and fee income, lifting revenue and sustaining high EBITDA margins.
• Figure has already originated over US$18b of loans on Provenance and processed over US$60b of blockchain transactions, and its blockchain based model has been used to reduce securitization costs and standardize loan data. If blockchain adoption in real world assets and consumer credit continues to progress, the company could see durable demand for its rails, supporting revenue growth and long term earnings power.
• Management is emphasizing a capital light marketplace model, with volume on Figure Connect already close to half of consumer loan marketplace volume and Democratized Prime structured as a fee based exchange. If the business keeps shifting away from balance sheet exposure toward recurring marketplace fees, capital intensity could stay low and free up cash generation, supporting net margins and earnings.
• The company is extending its infrastructure into new areas such as YLDS stablecoin on Sui and Solana and a blockchain native equity share class, while also targeting a broad US$185b plus opportunity across consumer credit and beyond. If these initiatives gain traction over time they could create additional revenue streams on top of the existing consumer marketplace, supporting revenue diversification and long term earnings resilience.

Valuation

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

• The assumed bearish price target for Figure Technology Solutions is $43.0, which represents up to two standard deviations below the consensus price target of $62.5. This valuation is based on what can be assumed as the expectations of Figure Technology Solutions'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 $75.0, and the most bearish reporting a price target of just $43.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $1.0 billion, earnings will come to $407.1 million, and it would be trading on a PE ratio of 34.8x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $62.85, the analyst price target of $43.0 is 46.2% lower. Despite analysts expecting the underlying business 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.