On Deck Capital Downgraded At Pacific Crest, Risk-Reward Out Of Whack

• The share price of On Deck Capital Inc ONDK has declined 49.09 percent year-to-date, from a high of $23.90 on January 2.
• Josh Beck of Pacific Crest has downgraded the rating on the company to Sector Perform.
• Beck prefers to move to the sidelines, given the rising model maturity, competitive and regulatory risks for the company.

According to the Pacific Crest report, “A maturing model, the SMB regulatory environment including recent commentary from the Counselor to Secretary of the Treasury, and growing competition… elevate execution risks.”

Analyst Josh Beck also believes that while the deal with JPMorgan Chase & Co. JPM is “impressive” and a “ringing platform endorsement,” it is unlikely to have a significant impact on On Deck Capital’s performance.

Related Link: On Deck Capital Skyrockets Nearly 40% Following Mega-Bank Partnership Confirmation: Small-Business Lending To Benefit

The JPMorgan Chase deal could potentially add between $0 and $20 million to On Deck Capital’s revenue, although even in the most optimistic scenario, it would account for less than 3 percent of the 2017 gross revenue estimate.

In addition, “FinTech-as-a-service platform margins are likely well above traditional loan economics, but the revenue yield may be much lower,” Beck stated.

Beck also noted that sales and marketing efficiency gains would become increasingly important for the company, going forward, although the rising SMB competition warrants caution regarding expectations.