Caribou: June 2023 Update

By Kristine Harjes

Technology company Caribou, formerly known as MotoRefi, aims to save customers money on their car-related expenses. Its primary offering is auto loan refinancing, where customers fill out a short online form and can receive a new rate offer from Caribou’s network of lenders within minutes. On average, customers save more than $100 per month with their refinanced loans.

By partnering with credit unions, Caribou helps otherwise-staid financial institutions more effectively target and acquire consumers. It also significantly streamlines the loan origination process for borrowers and credit unions. With a few pieces of information, Caribou can pre-qualify a borrower, process all the paperwork, and deliver a loan to the credit union that is fully compliant with its underwriting standards.

In exchange, Caribou is paid by both the borrower and the lender. It charges the customer $399, and receives a bounty from the lender based on the size of the loan. It also sells add-on products, like service contracts, at a significantly lower price than customers would find at an auto dealer.

When it rebranded itself in 2022, Caribou launched an auto insurance offering to expand beyond “just” refi. Since its refi customers are already taking steps to improve their car-related finances, they’re often interested in purchasing a new or better auto insurance plan at the same time.

In March 2019, Motley Fool Ventures invested $500K into Caribou’s seed round. We subsequently invested $1M in its Series A in January 2020, $1.6M in a November 2020 Series A-1, $391K in Series B in June 2021, and $1M in an April 2022 Series C. All in, our $4.3M invested has a fair value of $38.9M.

Expectations vs. Results

The Foolish Bottom Line

Rapidly rising interest rates are not good news for Caribou’s core auto loan refinance offering. Think about it: If you took out a loan when you first bought your car in a low-interest-rate environment, it’s less likely (though far from impossible) that a lower rate will be available to you in today’s market.

So far in 2023, Caribou has seen loan volume and revenue take a hit due to an interest rate hike by its highest-volume lending partner. The lender’s new criteria makes its loans unattractive to borrowers, and Caribou expects the impact of this to be felt through the end of the year.

We see rising interest rates as a timing hurdle. While we expect the difficult macro environment to limit Caribou’s revenue growth at least through year-end, we know markets are cyclical. Eventually, rates will make their way back down, and Caribou should see a tailwind commensurate with today’s headwind. Borrowers with loans originated in today’s high-interest-rate market will stand to benefit tremendously by refinancing when interest rates come down.

In the meantime, the company has ample cash on the balance sheet and has been aggressively cutting costs and improving margins. Even the loss of volume from the aforementioned lending partner has a silver lining, as this partner had a lower lender bounty and lower attachment rates. Shifting the revenue mix toward other partners will improve unit economics. Growing the nascent auto insurance segment is another priority, and we anticipate that this vertical will be a more meaningful contributor to the revenue makeup by this time next year.

PREDICTION BOX: (As of June 2023. It’s just a guess, not a promise.)

Amount Invested: $4.3M
Current Value: $38.9M
Estimated Return: $50M