A week after the Lending Club debut and markets are still extremely volatile. The macroeconomic situation has got no better, with the Rouble falling yet further against the dollar and oil prices continuing to fall.
Despite these poor conditions OnDeck did extremely well in its first day trading. Its shares were priced at $20 but rose nearly 40% on the day to a high of $28 before closing at $27.98. OnDeck’s price was increased to $20 from the original price range set of $16 to $18 per share. It raised $200 million in the offering.
Trading opened at $26.75; 2.4 million shares changed hands when trading opened which caused the shares to take an initial dive to $26.17. However, the shares rebounded to hit highs of $28 and volumes decreased throughout the day.
Lending Club has continued to perform well since its IPO last week. The shares have held well in the secondary market. Yesterday they were trading at about $27 before the closing the day at $27.90. This means both companies are now trading at a similar price.
However, Lending Club has a much higher valuation than OnDeck of about $9 billion, whereas OnDeck is valued at about $1.32 billion. At its float Lending Club was valued at 60 times its projected earnings for 2017, whilst OnDeck is trading at around 20 times its projected earnings for 2017. These valuations reflect the fact that investors think that Lending Club’s model is more likely to be profitable in the long run. OnDeck needs to hold a much larger amount of capital compared to Lending Club, as it does not use the traditional peer-to-peer model. This makes OnDeck more susceptible to credit risk, which makes it more exposed if there is a change in macro economic conditions.
“When we started the company we had to convince people that small businesses were underserved by banks. Now that’s completely understood. Then there’s the technology disruption where I think public investors have had limited ways to play that.”
We will be watching with interest to see how these companies trade over the next 6 months. It is highly likely that we will see other alternative lenders come to market next year. There have already been whispers that SoFi will IPO at the beginning of the year and it is likely other large platforms will follow it.