The 180-day lockup period for LexinFintech Holdings (NASDAQ:LX) ends next Tuesday on June 19, 2018. When this six month period ends, the company’s pre-IPO shareholders will have the opportunity to sell currently restricted shares. Just 7.3% of LX shares outstanding are currently trading pursuant to the IPO.
The potential for a sudden increase in the volume of shares traded on the secondary market could negatively impact the stock price of LexinFintech.
There is still time for aggressive, risk-tolerant, investors to get short ahead of this event.
Business Overview: Online Consumer Financial Products Platform in China
LexinFintech Holdings offers consumer financial products online through its platform in the People’s Republic of China. It operates its online consumer financial platform known as Fenqile, which offers installment purchase loans, personal installment loans, and other loan products. In addition, the company offers its Le Card credit line. It pairs consumer loans with a range of diversified funding sources such as individual investors over its Juzi Licai electronic investment platform and institution partners through direct lending programs.
Through September 2017, LexinFintech had approximately 6.5 million active consumers with approved credit lines. They also had more than 20 million registered users. The company focuses on young, well educated adults between the ages of 18 and 36. This consumer base in China has high income potential, high consumption needs, high education backgrounds, and a desire to build a strong credit profile. Through September 2017, this consumer group comprised more than 90% of LexinFintech’s customer base.
Since its inception, the company has cumulatively originated $9.0 billion in loans. For the nine months through September 30, 2017, LexinFintech originated $4.7 billion in loans for an increase of 124% over the same period the prior year.
The company was formerly named Staging Finance Holding Ltd. It became LexinFintech Holdings in March 2017. The company has approximately 2,600 employees and keeps its headquarters in Shenzhen, China.
LexinFintech Holdings reported the following financial highlights (in RMB) for the first quarter ended March 31:
- Operating revenue was RMB1.6 billion for an increase of 56.7%
- Gross profit was RMB412 million for an increase of 52.2%.
- Net income was RMB146 million for an increase of 160%.
- Total loan originations reach RMB14.8 billion for an increase of 98.3% compared to the first quarter of 2017.
- Total outstanding principal balance on loans was RMB21.3 billion for an increase for 99.3%.
- Total registered users was 26.4 million for an increase of 94.8%. Consumers with credit lines was up 64% to reach 8.2 million.
- Active consumers using loan products increased 39.2% to reach 2.6 million. The number of new consumers using loan products was 0.44 million.
- The 90 day delinquency ratio was 1.44%.
When the LX IPO lockup expires on June 19th, pre-IPO shareholders and company insiders will have the opportunity to sell currently-restricted shares of LX for the first time. This group of pre-IPO shareholders and company insiders includes a director and six corporate entities.
Since such a small percentage of shares outstanding are currently trading, significant sales of currently-restricted shares could flood the secondary market and cause a sharp, short-term dip in share price. Aggressive, risk-tolerant investors should consider shorting shares of LX during today’s session and tomorrow ahead of the June 19th lockup expiration. Interested investors should cover shares of LX either late in the trading session on June 19th or during the trading session on June 20th.
Disclosure: I am/we are short LX.