Blend Labs' Strategic Divestiture of Title365 to Covius: Fintech Focus and Risk Mitigation in Action

Blend Labs Inc. (NYSE: BLND) has taken a bold step toward strategic clarity with its announced sale of Title365 Holding Co., a national title insurance and settlement services provider, to Covius Services, LLC. This move underscores a critical pivot for the fintech company: shedding non-core assets to focus on its core mission as a digital origination platform. The deal, while contingent on regulatory approvals, signals a shift toward mitigating dependency risks and sharpening operational focus in an industry rife with complexity.

Strategic Realignment: From Diversification to Fintech Focus

Blend Labs acquired Title365 in 2021 for $422 million, aiming to integrate title services into its loan origination ecosystem. However, Title365 contributed just 17% of Blend's 2024 revenue—highlighting its peripheral role in the company's financials. CEO Nima Ghamsari framed the divestiture as a return to core priorities: “We're laser-focused on becoming the leading software platform for financial institutions.” By offloading Title365, Blend eliminates operational complexity and redirects resources to its digital platform, which processed $1.2 trillion in loans in 2024.

The transaction also ensures continuity for customers: Title365 will maintain its partnership with Blend, preserving integration with its loan origination systems. This “carve-out with collaboration” model minimizes disruption while enabling both companies to specialize: Blend as a software provider, Covius as a title services powerhouse.

Mitigating Dependency Risks: Breaking Ties with Rocket Companies

A critical risk driver for Blend is its reliance on Mr. Cooper—a firm now under Rocket Companies' ownership—as a major customer and stakeholder. Mr. Cooper contributed 17% of Blend's revenue in 2024 and holds a 9.9% stake in Title365. Analysts speculate that Rocket, which has historically prioritized in-house software, may exit its contracts with Blend post-2028. By divesting Title365, Blend reduces its exposure to this dependency, a move that could stabilize its revenue streams.

The sale also resolves governance risks. Title365's leadership transition to Covius removes internal management distractions, allowing Blend to concentrate on platform innovation. This realignment aligns with broader fintech trends: companies like Plaid and Stripe have similarly consolidated focus on core technologies, sidelining peripheral businesses to third-party partners.

Market Reactions: Optimism Amid Valuation Concerns

Blend's shares rose 1.3% premarket following the announcement, reflecting investor approval of the strategic clarity. Analysts at JMP Securities raised their price target to $7.00, citing resilience in platform revenue (up 12% YoY in Q1 2025) and record free cash flow ($15.5M). However, GuruFocus' GF Value model warns of overvaluation risks, citing Blend's $9.2M Q1 net loss and a $967M market cap that some argue overstates its near-term profitability.

Investment Implications: A Calculated Gamble on Fintech Focus

The deal presents a compelling thesis for investors willing to bet on Blend's long-term vision. Key positives:
1. Core Strengths Amplified: Redirecting resources to its origination platform could accelerate growth in a $200B+ U.S. mortgage tech market.
2. Risk Reduction: Mitigates exposure to Rocket's potential exit and simplifies operations.
3. Valuation Leverage: A $5.01 average target price implies 34.9% upside from current levels—a reward for investors who believe in Blend's platform dominance.

However, risks remain:
- Near-Term Volatility: Blend's Q1 2025 net loss ($9.2M) and reliance on large clients like Rocket pose earnings uncertainty.
- Regulatory Delays: The transaction's closing hinges on approvals, which could stretch into 2026.

Investment Recommendation: Blend Labs is a “Hold” for conservative investors but a “Buy” for those willing to take on risk for long-term fintech exposure. The stock's current valuation is reasonable at $3.30 (vs. a $5.01 average target), but investors should monitor execution on platform growth and regulatory progress.

Conclusion

The Title365 sale marks a pivotal moment for Blend Labs: a disciplined trade of short-term revenue for strategic focus and risk mitigation. While challenges remain, the move positions Blend to capitalize on its core strengths in a fragmented fintech landscape. For investors, this is a call to assess whether Blend's vision for a “software-first” future outweighs its present-day uncertainties.