In today’s market, the company feeling considerable heat today is Better Home (NASDAQ:BETR), also known as Better.com. At the time of writing, BETR stock has plunged more than 93% from yesterday’s close. Indeed, it has dropped from $17.45 yesterday to just above $1 per share.
This move comes as Better.com has begun to officially trade publicly. Its reverse special purpose acquisition company (SPAC) merger with Aurora Acquisition Corp just closed. This deal, which was initially announced more than two years ago, probably couldn’t come at a worse time for the mortgage origination company. At the time the SPAC deal was announced, Better.com was profitable, bringing in around $500 million a year. This was as low interest rates prompted a surge of mortgage refinancing activity in the U.S.
Today’s mortgage rates above 7% have essentially turned the mortgage origination market on its head. As such, Better.com has undertaken some serious cost-cutting efforts, including cutting its employee count from 11,000 employees in 2020 to 950 as of this June.
Let’s dive into what other factors are driving the incredible underperformance in BETR stock today.
BETR Stock Plunges More than 90% Today
Online mortgage origination activity certainly picked up in the post-pandemic environment. Better.com was perhaps one of the most high-profile companies operating in this space, providing a string of innovations that disrupted many larger players in the sector.
One of the more intriguing offerings Better.com brought on was the “one day mortgage.” Clients could essentially fill out online forms, submit a refinancing request, and get pre-approved within 24 hours with a locked-in rate and a binding approval letter from the lender. This sort of quick-and-easy process led to a surge of business for the company, which says it’s processed more than $100 billion in mortgages since its launch six years ago.
That said, rising mortgage rates have hurt the margins and business models of mortgage origination companies. In this higher interest rate environment, demand for mortgage refinancing applications as well as new mortgages has plummeted. Additionally, selling off originated mortgages may be more difficult, as packaging and selling mortgages into various MBS products becomes more costly (a function of lower demand).
Personally, I’m not sure if today’s 93% drop in BETR stock was fully warranted or not. This is a stock I’ll have to model out to see if the market is severely overreacting here. But for now, suffice it to say, investors aren’t liking what they see on this company’s first day of public trading.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
