💳 Do You Enjoy Lighting Money on Fire?

Originally Published: July 10, 2022 (here)

You can earn points on a drink purchased at happy hour last week, but can’t on rent. Seems almost silly, no?

Scratch that, it fully does not make sense.

Think about it - Your single biggest expense does not factor into your credit score.

It’s absurd.

Then Bilt came around. The company is solving one of the most obvious problems, and on top of that, building one of the strongest businesses I’ve seen.

Let’s dive in.

Hook, Line, and Sinker

Competition between credit card companies is fierce. AmEx, Discover, Visa, and literally every other airline card makes new entrants indistinguishable from the next. The space is saturated and if a player even wants to compete, it has to first convince folks to open up a new credit card. It’s not easy, but somehow Bilt makes it look like clock work. Let’s see how they do it.

(1) Points for paying rent

Nationwide, almost $500 billion is spent on rent every year, but due to the 2-3% transaction fee, most charge it to their debit card. Bilt found a work around to effectively mitigate the transaction fee.

With that barrier gone, the company is helping people build their credit score and bring them closer to purchasing their first home. Remember, the more data on paying your bills on time, the higher likelihood of a bank lending you money.

If that doesn’t get them customers excited… don’t worry. Let’s see what else they’ve got.

(2) Killer rewards program

By partnering with Mastercard and large property owners (i.e. Blackstone, Related, etc.), Bilt is creating the best rewards program on the market.

1x on rent. 2x on dining. 3x on travel.

You can use those points for miles, collection items, workout classes, hotels, and even on a down payment towards a home. This company is the definition of providing customer value.

If that doesn’t convince you, think about this.

If a credit card company’s value proposition is an enormous sign-on bonus, it is, by definition, a race to the bottom. The company is giving all the value up front to acquire the customer meaning the card’s value over time will have diminishing returns.

Enough on the advertisement piece. Let’s get into the inner workings of the company.

How does Bilt do it?

Aside from grit, perseverance, and a whole lot of blocking-and-tackling, the company is financially engineered as a fly wheel.

Top-Line Revenue

Their revenue stream consists of three components - each with a unique value proposition.

1. Traditional Interchange Fee - A percentage on every day spend from merchants

2. Loyalty Program Partners - Over two million of the top multi-family property owners and rewards partners pay Bilt to be a part of its loyalty program

3. Mortgage Business - This part of the business is the most important, but seems to be the most under-appreciated. Bilt has the best data, second to none, surrounding an individual’s ability to pay their largest monthly expense. With that data, Bilt can help originate mortgages from banks on behalf of its customers.Instead of sourcing loan recipients for large banks, I believe Bilt will eventually become the lender. The company is setting itself up to be the best mortgage originator, lender, and default-predictor in the market.

Their expenses?

The CEO of the company has publicly stated the company does no paid marketing. The card’s Bilt Rewards partners advertise the company at their buildings, parties, and websites. Think about how strong that is. The companies that pay Bilt are an organic marketing channel for Bilt. At a Related party, you’ll see Bilt brochures. On StreetEasy, you’ll bonuses for signing up. Best part? All organic.

If you think about it financially, it implies their LTV/CAC ratio is insane. It costs nearly nothing to acquire a retail customer, but the long-term value is astronomical.

The company has you think its total addressable market (TAM) is the $500 billion spent annually on rent, but in reality it is equivalent to the almost trillion dollars of consumer credit outstanding. Rent is their trojan horse, every day expenses are their goldmine. Credit cards are the largest consumer lending product and on average, Americans pay over $100 billion per year in credit card interest and fees. If the team executes well, Bilt has the potential to control significant market share in a multi-billion dollar industry.

Valuation

Currently Bilt is valued at $350M from its last round in September 2021. Notably, the company raised $60M from Blackstone, Mastercard, Morgan Properties, Starwood Capital, Wells Fargo, and more. The company’s cap table is an ecosystem with its partners - brands, marketers, and property managers - all with their incentives aligned positioning Bilt to take on the greats.

TLDR

The fly wheel continues to spin.

Top-line is diversified and growing. Expenses remain little to none. Margins are improving and lots of market share to acquire.

Really, Bilt has the potential to be the next AmEx.

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This post and the information presented are intended for informational purposes only and are not a reflection of my employer. The views expressed herein are the author’s alone and do not constitute an offer to sell, or a recommendation to purchase, or a solicitation of an offer to buy, any security, nor a recommendation for any investment product or service. While certain information contained herein has been obtained from sources believed to be reliable, neither the author nor any of his employers or their affiliates have independently verified this information, and its accuracy and completeness cannot be guaranteed. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, timeliness or completeness of this information. The author and all employers and their affiliated persons assume no liability for this information and no obligation to update the information or analysis contained herein in the future.