What are the Forces Behind the GreenSky IPO?

GreenSky is going big, hoping to raise nearly $750 million for its initial public offering, an achievement that would put the lending FinTech firm in the IPO big leagues for recent technology-focused offerings.

But what’s behind the pending payday for this private Atlanta-based firm?

After all, IPOs have been scarce in recent years because of rising defaults among borrowers, as well as increased competition. Financing has increasingly been the job of private investors. Beyond that, shares in online lenders LendingClub and OnDeck Capital have significantly declined from their IPO prices.

GreenSky, through which retailers, health-care providers and home contractors can offer loans to their customers, could go public as early as this summer, with its shares priced at between $21 and $23 each. GreenSky does not make loans directly. The company boasts a network of banks, including heavyweights as Fifth Third and SunTrust, that funds those loans. That translates into a sense of stability for potential investors in advance of that IPO, according to analysts and media reports.

GreenSky has stood profitable for the last five years, with its 2017 revenue estimated at $250 million, according to Forbes. Moody’s predicted that GreenSky will have at least $400 million in revenue this year.

That’s not all GreenSky has working for it. When it comes to home improvement loans, the winds are blowing in the company’s favor — at least according to one recent survey report. Some 58 percent of U.S. homeowners will pay for home improvements this year, roughly the same level of interest in 2017, according to the fifth annual LightStream Home Improvement Survey. LightStream is the national online lending division of SunTrust Banks.

But spending plans tell a different story, one that works in favor of the GreenSky IPO. “The percentage of people intending to use a home improvement loan has grown 29 percent from 2017, with 54 percent more 18- to 34-year-olds planning to fund projects through home improvement financing,” the report said. “While overall, 30 percent of homeowners say they’ll pay for some portion of their 2018 project with a credit card, 16 percent fewer homeowners aged 18 to 34 plan to use them” compared to 2017.

“Consumers are becoming more comfortable with home improvement loans because of the availability of higher loan amounts, speed of delivery and the overall flexibility they provide,” said Todd Nelson, LightStream senior vice president.

Additionally, more consumers are worrying about not being able to afford healthcare costs, another trend that can help GreenSky. For instance, the Commonwealth Fund, a U.S.-based private foundation that focuses on healthcare, recently reported that 62 percent of patients have confidence they can afford medical treatment. That is down from 70 percent in 2015. That diminishing confidence comes amid an 11 percent increase in patient financial responsibility, according to a report from TransUnion Healthcare.

“The point of sale loan market is hot now and banks are eager to use these methods as a source of new consumer loans as they seek to diversify their loan books,” wrote Donovan Jones, of IPO Edge, a research firm, in an analysis this week about the GreenSky IPO. “Consumers find these services compelling as it provides them with alternatives to mainstream or store-branded credit cards. Retailers like this option since they sell more products as a result of providing more ways for consumers to purchase.”