Katapult Holdings (NASDAQ: KPLT) stock should rise 2.500% at the open today. KPLT stock rising by that 25x is not, sadly, evidence that they've sorted out the business. Instead this is a purely technical move based on the idea that they'd rather like to keep the NASDAQ quote. That they're having to do this under three years from their arrival on the stock market shows how that underlying business really isn't doing all that well. The cheery news coming from the management doesn't convince us all that much otherwise either.
Katapult came to market in Dec 2020 as a SPAC merger and went up to $15 and more seen after. It's been downhill pretty much all the way since. As to what they do at Katapult: “Katapult Holdings, Inc., an e-commerce focused financial technology company, provides e-commerce point-of-sale lease-purchase options for nonprime consumers in the United States. The company's technology platform provides nonprime consumers with a lease purchase option to enable them to obtain durable goods from its network of e-commerce retailers.” So, it's another go around at sub-prime credit. Our usual read on this is that yes, new technologies might find new borrowers. But the real problem in banking - of any kind - is finding people worth lending to, not new ways of lending.
We're also unconvinced by this line from the recent results: “Katapult is now on a roll, and as CEO Orlando "Oz" Zayas stated on the call, Katapult "had an outstanding Q1." As he has repeated in past calls, "historically lease-to-own solutions benefit from periods of shrinking prime credit availability, creating a counter-cyclical hedge against the challenging macro environment." So, in our current economy, Katapult is a recession-proof, beacon of hope for "over 30% of Americans overlooked by traditional financing options [with] 39% not being able to cover $400 of an emergency expense without assistance."”
While hard economic times do indeed lead to a contraction of prime credit they also lead to an increase in default rates on marginal credit - sub-prime that is. And while lease to own might insist that there's security against such loans - the item being leased - the residual values of those leased items also collapse in economic hard times. That is, we're not convinced by the offer here.
Katapult Holdings stock price from Google Finance
The specific move today is a technical one though. It's about that fall in the KPLT stock price below the NASDAQ $1 minimum bid requirement. They'll lose the NASDAQ quote unless they do something about it. That something to do is to have a reverse stock split. Simply declare that what used to be 25 shares will now be one. This doesn't change the overall market capitalisation, just the number of shares that makes it up. Therefore, and mechanically, the stock price rises 25x, or 2,500%.
In and of itself a reverse stock split is neutral. The future performance is going to depend upon that sub-prime credit market. Next KPLT results are August 9th.