What is the outlook for future deal pipeline and its potential effect on the stock's forward earnings multiples?

Short‑Answer Summary

• Deal‑pipeline outlook: Blend’s Q2 2025 results show a significant acceleration in sales – 23 new or expanded deals, roughly twice the number the company closed in the comparable period before. This double‑digit increase signals a robust, expanding pipeline that management expects to continue feeding the business throughout the rest of 2025 and into 2026.

• Potential impact on forward earnings multiples: A stronger pipeline means higher expected revenue and earnings growth. As analysts and investors incorporate that higher growth trajectory into their valuation models, the forward price‑to‑earnings (P/E) multiple for BLND is likely to compress upward (i.e., investors will be willing to pay a higher multiple for each expected dollar of earnings). The magnitude of that multiple expansion will depend on:

1. How quickly the new/expanded deals translate into recurring revenue. If the deals are largely for new‑originations or large‑scale expansions on existing customers, the incremental recurring revenue (ARR) and net‑interest‑like revenue will rise faster than historical growth.
   
2. Market perception of sustainability. The fact that the deal count is double the prior period gives a tangible narrative that the platform is gaining traction. If analysts view this as a sustainable trend rather than a one‑off spike, the forward‑earnings multiple could rise 10‑30 % (roughly a 0.1–0.3 increase in the forward P/E) over the next 12‑18 months.
   
3. Pricing and margin profile. Blend’s platform business typically enjoys high gross margins (≈80‑85 % gross) and strong contribution margins. Adding high‑margin digital‑banking deals reinforces the ability to lift earnings per share (EPS) faster than the share price, which also pushes the forward multiple higher.
   

• Bottom‑line: The pipeline outlook is very positive, and if the company delivers the expected incremental revenue, forward earnings multiples are likely to expand, reflecting higher growth expectations. In other words, investors should expect higher forward‑P/E multiples unless the stock price appreciates faster than earnings, which would compress the multiple.
  

Detailed Reasoning

1. What the news tells us about the pipeline

Implications for the pipeline

• Deal volume and quality: “New or expanded” deals often involve existing customers expanding usage—this tends to be high‑margin and sticky (lower churn).
  
• Revenue trajectory: Doubling the deal count in one quarter usually precedes double‑digit revenue growth for a platform business, especially when the deals are spread across multiple banks and mortgage lenders who use the platform for a large volume of loan originations.
  
• Timing: In a SaaS‑like origination platform, once a deal is signed, revenue is recognized over the life of the contract (subscription, usage‑based fees). This means the impact on earnings is front‑loaded and will show up in the next few quarters.

2. How a stronger pipeline feeds forward earnings multiples

Forward earnings multiples (e.g., forward P/E) are driven by two main variables:

1. Future earnings expectations (EPS) – higher anticipated earnings push the denominator up, reducing the denominator in the P/E formula (Price / EPS) and thereby raising the multiple if price doesn’t change proportionally.
   
2. Market price expectations – the market may price in growth, causing the stock price to rise ahead of actual earnings. This can compress the multiple if the price rises faster than EPS.

Mechanism

• Higher ARR (annual recurring revenue) from new deals → Higher revenue → Higher EBITDA and EPS (platform business has high gross margins).
  
• Analysts will raise the forward EPS estimate for 2025‑2026 (the typical 12‑month forward window) by 10‑20 % (or more) depending on the size of the deals.
  
• The stock price typically reacts positively to this guidance, especially in growth‑oriented tech and fintech sectors where the market is accustomed to premium valuations (often a forward P/E of 40‑60x for high‑growth SaaS).
  
• Result: The forward multiple may expand (e.g., from 30x to 35‑40x) if investors believe the growth is sustainable, or compress if the price overshoots the actual earnings realization.

3. Likely Range for Forward P/E Expansion

Key risk: If the market already priced the acceleration in the stock price (i.e., the share has already rallied on the Q2 results), the forward multiple may not increase much. Instead, earnings need to meet or exceed expectations to keep the multiple stable or rising. A miss on guidance could compress the forward multiple (price falls, but EPS also falls).

4. Bottom‑Line Take‑away for Investors

1. Strong, expanding deal pipeline → Higher near‑term revenue → Higher forward earnings → Potential uplift in forward P/E.
   
2. Expect a modest‑to‑moderate expansion of the forward multiple (10‑30 % upside) if the deals translate into recurring revenue on schedule.
   
3. Watch for guidance in Blend’s next earnings release (likely Q3 2025) on:
   • ARR growth from the 23 new/expanded deals.
   • Retention and expansion metrics (gross retention, net new ARR, churn).
   • Margin trends (gross, operating) which will affect the conversion from revenue to earnings.
4. Risk: If the market has already priced in a “double‑deal‑count” story, the stock might already reflect higher forward multiples; future earnings must beat those expectations to sustain the multiple.
   

Bottom line: The pipeline outlook is clearly positive and should support higher forward earnings multiples for BLND, assuming the company translates the new deals into revenue on schedule and the market continues to value growth in the digital‑banking platform sector. Investors should keep an eye on subsequent guidance and actual ARR growth to fine‑tune their expectations for the stock’s forward‑P/E trajectory.