A closer look at Lending Club’s results

By Georgina McCreadie on Wednesday 4 March 2015

FeaturesAlternative Lending

It has been well reported that Lending Club’s shares nose dived last week after its first earnings report since flotation. The platform released its results on Tuesday and by Wednesday morning its results were down by nearly 14%.

Lending Club reported that revenue for the quarter was at $69.6 million and $213.4 million for the year vs. $33.5m and $98.0m for 2013. The company reported a 2014 loss of $32.9 million compared with a profit of $7.3 million a year earlier, due to expenses from marketing and product development.

Renaud Laplanche, founder and CEO of Lending Club, commented:

"We have continued to expand our reach through 2014 by doubling the size of the business again, while continuing to invest heavily in future growth and risk management. Our IPO in December was an important milestone in the life of the company, and everyone at Lending Club is excited about the next 5 to 10 years and committed to delivering more value and a great experience to our customers. 2015 is going to be another investment year, and we intend to continue growing originations and revenue at a fast, yet deliberate pace."

Most investors value Lending Club as being a fast growing tech company but the platform’s growth projections have somewhat underwhelmed investors. The platform reported $0.01 Adjusted EPS for the quarter, meeting the Reuters consensus estimate of $0.01. It is expected that the company will post $0.08 EPS for the year.

Renaud Laplanche told CNBC:

"I've supplied up a couple of decades in the past seeking to guess what direction inventory charges are going to transfer. From our standpoint, we grew more rapidly than we considered we would."

"Our IPO in December was an crucial milestone in the lifetime of the corporation, and everybody at Lending Club is enthusiastic about the following five to ten many years and dedicated to delivering a lot more worth and a fantastic working experience to our consumers. 2015 is going to be one more financial commitment year, and we intend to carry on expanding originations and income at a quick, nonetheless deliberate pace."

Much focus has also been directed at the high profile partnerships that Lending Club has made this year. These partnerships, including tie-ups with Google and Alibaba, should help to boost origination volumes. However, part of the slump in the shares has been attributed to the fact that these partnerships are not giving as much value as was initially expected. 

On the street there is a great discrepancy from analysts about how they value Lending Club’s shares:

  • BTIG Research currently has a $31.00 target price on the stock with a ‘buy’ rating.
  • Compass Point has lowered their price target on shares from $19.00 to $16.00 with a ‘sell’ rating.
  • Vetr downgraded the stock from a ‘buy’ to ‘hold’ rating and set a price target of $25.00.
  • Credit Suisse has set a price target of $24.00 with a ‘neutral’ rating.
  • Sterne Agee said that Lending Club’s closing price on Tuesday of $23.65, meant its shares were valued at roughly 37 times its expected 2017 earning compared to speciality finance companies that trade at roughly 12 to 15 times.
  • BMO has reiterated its ‘outperform’ rating and $28 target price

BMO Capital Markets commented:

"We continue to expect Lending Club to benefit from strong growth in loan originations as borrowers and investors flock to the company's platform to take advantage of the benefits it offers: lower rates of interest for borrowers and higher rates of return for investors. We believe the company will spend more aggressively on marketing in 2015 to draw additional borrowers and investors to the platform."

A good entry point into the stock has been suggested at $15 by many writers, which indicates that the stock is currently very overvalued.

One of the main problems that Lending Club faces is increasing its volumes whilst maintaining the quality of its borrowers. There is a vast pool of borrowers in the US that have low FICO scores and are looking for loans that Lending Club could easily pick up. Monitoring its loan quality and volumes is only one of the challenges for investors in the stock. Lending Club is currently trading at about $20 share, a small recovery from last week. Prior to the results the shares traded at about $24. A the wide range of pricing estimates given by analysts shows it is very uncertain where the stock will go from here. But it is closely tied to the fortunes and perceptions of the entire P2P industry. Many analysts are still unsure whether this company should be valued as a tech or finance company, when thoughts around the P2P industry become more concrete it may become easier to predict how Lending Club’s shares will be valued by investors.  

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