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Consumer lender Oportun Financial, based in San Carlos, California, is making significant cutbacks as it grapples with cost reduction measures. The company is letting go of 18% of its corporate staff and reassessing its strategic goals. This shift is prompted by the need to address escalating costs and the increasing challenges faced by Oportun borrowers in repaying their loans.

In response to these financial pressures, Oportun has taken several actions. One notable move is the exploration of strategic alternatives for its credit card portfolio, a segment it has been cultivating over the past few years. Additionally, the company is discontinuing its investment products, retirement products, signaling a departure from these areas of business. Moreover, Oportun has decided to terminate a recently launched partnership with Sezzle, a “buy now/pay later” platform.

The repercussions of these measures were quickly felt, with Oportun’s stock price plummeting by a staggering 49% following the announcement of these layoffs in its third-quarter earnings release on Monday. CEO Raul Vasquez expressed his disappointment with the quarterly results of the company, which were adversely affected by rising interest expenses and the challenges Oportun borrowers faced in repaying their loans.

Oportun’s target demographic primarily lists individuals with lower credit scores, a group that started facing financial difficulties in the previous year because of inflation and higher interest rates impacting their financial resources.

Jonathan Coblentz, Oportun’s Chief Financial Officer, commented on the situation, saying, “This is not how we anticipated or wanted to close 2023.” Nevertheless, he remained determined and confident in the decisive actions taken by the company.

These measures result in job cuts that will impact 185 of Oportun’s staff, which will reduce their total headcount by 7%. Notably, these layoffs come on top of earlier cuts made by Oportun in its corporate division earlier in the year.

The company’s earnings release stated that total operating expenses during the quarter were $123 million, which took it to the lowest level in two years. This cost-cutting initiative can expectedly bolster Oportun’s earnings in the future, as noted by John Hecht, an analyst at Jefferies. However, the company’s guidance for the rest of 2024 fell short of expectations. it also continues to reflect a challenging environment.

Oportun’s earnings also fell below prior expectations, with adjusted earnings before interest, taxes, depreciation, and amortization standing at $16 million during the quarter, well below the previously projected figure of more than $35 million. The key contributing factors to this decline were higher interest expenses and adjustments made in the valuation of loans, reflecting the difficulties faced by borrowers in repaying their loans.

During the third quarter, Oportun wrote off more loans, leading to an annualized charge-off rate of 11.8%, up from 9.8% compared to a year earlier. The primary driver of this increase was loans issued before July 2022 when Oportun tightened its underwriting criteria in response to inflation affecting its borrowers’ financial situations.

Oportun remains cautious and is further tightening its underwriting criteria due to the uncertain macroeconomic environment and rising gas prices, which have created financial pressures for consumers.

As a result of this stricter lending stance, Oportun focused on emphasizing “quality over quantity” when originating new loans last quarter. Consequently, the company saw a 24% decline in loan origination, with $483 million in loans compared to $634 million in the previous quarter.

To navigate these challenges, Oportun is shifting its focus towards the “most proven and profitable parts of the business,” including an automated app for savings that charges $5 per month. This also includes the core product offering of unsecured personal loans.

The company is also working to expand its secured personal loan product to approximately 40 states. These auto title loans are collateralized by the cars of the borrowers and are expected to complement the unsecured loans of Oportun, which carry no collateral. This strategic move aims to serve customers better — especially those in need of sizable loans while reducing the company’s credit exposure.

Oportun has plans to complete the expansion of secured loans by the end of 2025.

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