The stock of India-born American entrepreneur Vishal Garg’s Better Home & Finance Holding experienced a staggering drop of over 95% on the debut listing day. The dramatic decline came as investors exhibited reluctance towards the online mortgage lending company.
The stock plunge occurred immediately following the company's debut on the public market through a merger with Aurora Acquisition Corp, a special purpose acquisition company (SPAC). The timing of this debut proved challenging as mortgage rates had soared to levels not witnessed in two decades.
Better.com drew substantial attention when its CEO Vishal Garg carried out a massive termination of 900 employees via a Zoom call in December 2021. This event marked a controversial episode in the company's history at a time when US was battling Covid pandemic.
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Vishal Garg attributed the massive layoffs to market efficiency, performance, and productivity. However, Garg alleged employees of "taking advantage" of their peers and customers, engaging in unproductive behaviour, and dedicating just two hours a day to work.
In the aftermath of the leaked Zoom call that triggered significant public backlash, three key executives at Better.com had resigned from their positions.
The surge in key interest rates, reaching levels seen only once in past two decades, exerted a notable negative impact on Better's bottomline. The company's profitability was hindered as these elevated rates led to a reduced demand for home loans.
Operating within the framework of special purpose acquisition companies (SPACs), Better's merger process was conducted. SPACs serve as vehicles for taking private companies public through acquisitions. One distinctive feature of SPACs is that shareholders often possess the option to redeem their shares before a merger transpires.
In a revealing statistic, it was disclosed that an overwhelming 95% of Aurora shareholders chose to redeem their shares prior to the merger's completion. This decision significantly depleted the SPAC's trust account, rendering it with a far lower value compared to the previous year.
A pivotal development emerged in the form of a $550 million investment infusion from SoftBank as part of the merger's completion. This substantial financial injection was earmarked to fuel Better's expansion in mortgage product offerings.
Better's trajectory was marked by a remarkable growth surge amid the onset of the COVID-19 pandemic. Favourable mortgage rates enabled the company to achieve revenue exceeding $850 million in 2020. However, this growth momentum stalled as rising mortgage rates contributed to a net loss of $89.9 million reported in the subsequent first quarter of 2021.
The escalation of US mortgage rates was an undeniable factor that influenced the company's fortunes. These rates reached levels not observed since the year 2000. This surge significantly contributed to a substantial decline in mortgage applications, hitting a low that hadn't been witnessed in 28 years, according to the Mortgage Bankers Association.
Government bond yields, which hold a sway over home-loan rates, played a critical role in this volatile narrative. The surge in US government bond yields echoed echoes of the 2007-2009 financial crisis, generating economic turbulence.
The journey of Better Home & Finance Holding serves as a dynamic saga, weaving together elements of market volatility, regulatory complexities, and economic fluctuations. This visual story encapsulates the intricate interplay of these factors that contributed to the unfolding narrative of a company's rise, challenges, and subsequent downturn.