Small business lending platform OnDeck has seen losses grow as marketplace sales have slowed.
OnDeck has posted a net loss of $13.1m on the quarter, over twice the size of the losses sustained by the company in Q1 2015 – which stood at $5.3m. The Q1 results highlighted net losses for shareholders of 18 cents per share, versus a loss of 8 cents per share for the three months ended 31 March 2015. This loss on share price appears to have exceeded expectations, with the Wall Street Journal pointing to a recent polling of analysts by Thomson Reuters, who on average expected a loss of 7 cents a share.
OnDeck has continued to deliver origination growth over the past three months, posting 37% year-on-year growth and $570m of loan origination in the opening stanza of 2016. The platform also delivered $62m in gross revenue, up from $56m in Q1 of 2015. Gross revenue and net revenue also jumped by 11% year-on-year respectively. However the $62m fell short of the $66-69m range that the company had anticipated earning.
In the wake of these results, OnDeck's share price has dipped to $5.51, down 36% from Monday's opening price of $8.63. The company listed on the New York Stock Exchange in December 2014 at a price of $20 a share.
Perhaps the biggest single factor in the platform’s Q1 slowdown was cooler demand for loans sold through its marketplace sales programme. OnDeck operates a hybrid funding model whereby loans are funded off its own balance sheet, through an institutional marketplace and via securitisation. The platform sold 26% of the loans that were originated in Q1 through the marketplace, down from 40% in the fourth quarter of 2015. The gain-on-sale rate for these loans slipped from 9% in Q4 2015, to 5.7% in Q1 2016. OnDeck CEO Noah Breslow offered his thoughts:
"Our hybrid funding model is designed to adapt to changing capital markets conditions and is a point of competitive differentiation. In the first quarter, we utilized this flexibility and decided to sell fewer loans through OnDeck Marketplace. This decision optimized for long-term financial performance but, over the short-term, will lead to lower Gross revenue, higher provision expense, and lower Adjusted EBITDA than we previously planned. We will see greater financial benefits from our decision beginning in 2017."
Lending Club and Prosper will each issue their own quarterly reports over the next few weeks, with the former platform's due on Monday 9th. We’ll be interested to see whether marketplace sales are slowing down across the board. All of this comes, after all, during a period in which investor demand for marketplace lending assets appears to have cooled – due in part to loan rate hikes, ratings reviews for securitisations and tepidly received bond offerings.