As the US P2P lending market approaches its 10-year anniversary, some sensational news came from major players in the industry. Companies had just reported their results for the first quarter of 2016, which increased the volatility of their share prices.
It all started with OnDeck reporting poor numbers for the first quarter of 2016, which led to OnDeck shares plunging by more than 45%. The reason for poor performance of the company was simple: there weren’t enough lenders on their marketplace platforms. OnDeck sold only 26% (compared to 40% in the fourth quarter of 2015) of originated loans through their platform and gain on sale was only 5.7% (compared to 9%). This resulted in revenue taking a hit as well. At the day OnDeck reported, it was natural to anticipate Lending Club to report weak numbers as well, so shares of the company took a 10% hit that day.
Then Prosper announced that it is slashing 28% of its workforce. The company hired personnel for growth in 2015, but in an effort to streamline the operations, Prosper had to let go some members of its operations team. This could actually be very beneficial for the company. One can do back of the envelope calculations that would likely show that the company should become profitable.
Subsequently, the market was hit by the news from LendingClub – the board of directors dismissed its CEO and founder, Renaud Laplanche. Since the announcement Lending Club shares tumbled by more than 47%. There were a lot of speculation on why that happened and what exactly went wrong, but the only thing that data shows is that LendingClub performed very well with Mr. Laplanche being the CEO.
Speaking of numbers, Lending Club showed impressive Q1 2016 financial results, which were completely dismissed by the press. Here are the major highlights:
- Lending Club reported a 6% growth in originations in Q1 2016 compared to Q4 2015, while originations of Prosper and Avant declined 15% and 27% respectively. Lending Club implemented a very thoughtful scheme for working with lenders and a focus of Mr. Laplanche to rely on retail investors. The graph below demonstrates the originations of Lending Club, Prosper, and Avant, attesting the great performance of Lending Club.
- Lending Club met each and every estimate they provided during the conference call dedicated to discussion of 2015 results for Q1:
- Revenue is $151.2 million vs guidance of $147 million, +87%YoY
- EBITDA is $25.2 million vs guidance of $25 million, +137% YoY
- EPS is $0.01 per share vs guidance of $0.01 per share.
Furthermore, the performance of loans is as stable as ever. The chart below shows market lending consumer delinquency rate for LendingClub, Prosper and blended. As it evident from the chart, the delinquency rate remained relatively stable over the past four years. I personally invest in P2P loans through Prosper platform and my returns are as well very stable – they even increased 1.1% over the last quarter (for statistics lovers – I opened my account in January 2015, so this increase in returns is meaningful).
As a result, Lending Club is performing well financially and credit quality remains stable. The company is valued at $1.43 billion, which gives 9.8x EBITDA multiple based on 2016 expected EBITDA of $145 million. It seems undervalued as a market leader that is growing fast and has a huge EBITDA potential. Keeping in mind that Lending Club has $868 million of cash, cash equivalents and securities available for sale and no debt, it is valued at 3.9x EBITDA of the current year net of cash, which without a doubt looks low. Lending Club takes another beating from investors despite showing decent performance. While the crowd is afraid of messing with marketplace lenders, smart money buys in – almost 53million of shares changed hands on May 11, 2016.
Author: Mike Lobanov
About the author: Mike Lobanov is running Target Global, a pan-European VC firm that invests in tech deals worldwide, but primarily in Fintech and B2C Internet space in Europe and USA. Mostly responsible for fintech investments and general management of the firm.
Disclosure: Target Global is an investor in Prosper Marketplace.