Blend Labs' Disappointing Earnings: A Closer Look at the Accrual Ratio and Unusual Items

Blend Labs' (NYSE:BLND) Q2 earnings disappointed investors, with a negative accrual ratio of 93.01 and negative free cash flow of $2.8m despite a profit of $2.97b. The accrual ratio indicates high accruals, which may lead to lower profitability. The company's profit was boosted by unusual items worth $1.5m. Investors should assess earnings with caution due to these underlying numbers.

Blend Labs (NYSE: BLND) reported its Q2 2025 earnings, with a mixed performance that left investors with a blend of optimism and caution. The company reported a revenue of US$31.5 million, down 22% from the previous quarter but still showing a 10% year-over-year increase. This revenue figure missed analyst estimates by 1.3% [1].

The company's net income improved significantly, reaching US$729.0k, up from a loss of US$23.6 million in the same quarter last year. However, the profit margin stood at 2.3%, up from a net loss in the previous quarter. Earnings per share (EPS) improved to US$0.003, up from a loss of US$0.093 in the previous quarter [1].

Despite the positive earnings, Blend Labs faced some challenges. The company reported a negative accrual ratio of 93.01 and a negative free cash flow of $2.8 million. The accrual ratio indicates high accruals, which may lead to lower profitability in the future. The company's profit was boosted by unusual items worth $1.5 million, which investors should assess with caution [1].

The company's management highlighted several strategic initiatives. CEO Nima Ghamsari emphasized the company's focus on expanding market share, increasing take rate with existing customers, and growing the consumer banking business. The company also reported a 43% year-over-year growth in consumer banking suite revenue, which now represents 36% of total revenue [2].

Looking ahead, Blend Labs expects revenue to grow by 12% per annum on average over the next three years, compared to a 13% growth forecast for the software industry in the US. However, the company acknowledged near-term headwinds in the mortgage market and potential seasonality in market volumes [2].

In summary, Blend Labs' Q2 2025 earnings were a mixed bag, with positive revenue and earnings growth offset by high accruals and negative free cash flow. Investors should assess the company's earnings with caution, taking into account the unusual items and the potential impact of near-term headwinds.

References:
[1] https://finance.yahoo.com/news/blend-labs-second-quarter-2025-133403813.html
[2] https://seekingalpha.com/news/4482761-blend-labs-targets-190m-rpo-and-43-percent-consumer-banking-growth-while-advancing-ai-and