We Expected More From Katapult Holdings
We had such high hopes for Katapult Holdings (NASDAQ: KPLT) and they’ve been dashed. Katapult Holdings, Inc is a point of sale option for eCommerce portals that provides financing and rent-to-own services to lower credit quality individuals. The stock hit our radar earlier this summer after its IPO and it certainly looked like a winner. While the stock is still fundamentally a good play on both eCommerce and the consumer, near-term headwinds have emerged and opened up what will likely evolve into a Class-A buying opportunity.
While not explicitly listed, we read these headwinds to include Peak Recovery, inflation, the Delta variant, supply chain issues, and the rapidly diminishing stimulus that was fueling so much of last year's consumer spending. The end result is that business wasn't as good as it could have been and guidance has been rescinded. We were expecting so much more.
“Given the current macro trends and uncertainty to accurately predict our consumer’s buying behaviors for the remainder of the year, we believe it is best to remove explicit guidance for the remainder of 2021. While the short-term outlook may not be 100% clear, we do continue to believe in our mission, our core business fundamentals, and are extremely pleased with the progress of our strategic investments that will drive long term growth. We expect to have more insight into these new and evolving patterns by our third quarter earnings call”
Katapult Holdings Good Quarter Is Not Good Enough
Katapult Holdings had a good quarter but one that came far short of our expectations. While growth continues on both a sequential and year-over-year basis the pace of that growth has slowed dramatically. The $77.47 million in net consolidated revenue is up 54% sequentially and 27.6% from last year but that compares to triple or near triple-digit gains for both comparisons in the previous quarter. On a year-to-date basis, revenue is up 53%, and therein lies the reason for the guidance removal. The company was predicting triple-digit gains for the year and right now that does not look like it is in the cards.
The most distressing news in the report is perhaps the originations data. While originations advanced from the prior quarter they grew a mere 1% and are down 17% from last year. If there was a data point that could lend hope to the outlook it would be this one and it failed to do so. Despite all this, there is evidence the company is positioning itself for leverage when consumer spending picks up again. The company onboarded more than 30 new merchants setting it up for both revenue and earnings leverage at some time in the future.
Moving down to the bottom line, earnings were also a disappointment and impacted by more than just the revenue weakness. The company accelerated investments in technology and expansion as well as and that took a toll on earnings, cash, and cash flow.
Short Sellers Take A Bite Out Of Katapult Holdings
Katapult Holdings may not qualify as one of the meme stocks but it certainly had a high enough short-sell interest going into the Q2 earnings report. The 10% short interest suggested no small amount of bearishness within the market and that certainly helped drive share prices to their current levels. The stock is down more than 40% in the wake of the Q2 report and is trading at the absolute lowest levels since the SPAC merger and IPO was first announced. Investors should expect some volatility in the near term but we are also expecting to see this stock begin bottoming fairly soon. Katapult Holdings may never produce triple-digit growth again but high-double digits are ok too, for the right price.
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