October 31, 2015
Lending Club, the world's largest online marketplace connecting borrowers and investors, today announced financial results for the third quarter ended September 30, 2015, and reported a net income of $950,000 for the first time after its IPO in December 2014. Exactly a year ago, Lending Club reported 7.4 million in losses. The company was losing money until this quarter because it was spending more in engineering, product development and sales & marketing than it was earning via loan originations. However, Lending Club has done a remarkable job in growing in triple digits in revenue. It originated more than $2.2 billion in loans this quarter, which is the highest of all quarters to date.
"We had another spectacular quarter, with revenue growth re-accelerating from 98% to 104%, and EBITDA jumping 181% year-over-year to reach 18.4% margin," said Lending Club founder and CEO Renaud Laplanche. "With over 1.2 million customers, continuously high customer satisfaction, strong credit performance, increased marketing efficiency and lower customer acquisition costs, we are continuing to observe tremendous network effects and benefits of scale. Our results this quarter combined with our raised Q4 outlook lead us to forecast a near doubling of revenue again this year and look toward 2016 with high confidence."
Only a month ago, LTP interviewed Dave Gilbert, Founder and CEO of National Funding, one of the oldest players in the alternative lending space focused on small businesses. At that time, he had told us that National Funding is the only profitable alternative lender in the country. Well, this is not true anymore as Lending Club joins the profit club.
Morgan Stanley’s report on Lending Club in May 2015 did predict growth and expansion at the company. Morgan Stanley’s analysts stated that Lending Club’s stock price decline in the share market post-IPO was due to investor concerns regarding the sustainability of the company's competitive advantage, "in light of a rapid increase in the number of new entrants in marketplace lending." The May 2015 report on Lending Club also stated, "Moreover, because we expect marketplace lenders can reach a customer base that was previously unmet by banks, we expect some market expansion,"
Highlights of Lending Club’s Q3 2015 earnings:
- Loan originations in the third quarter of 2015 were $2.24 billion, compared to $1.17 billion in the same period last year, an increase of 92% year-over-year. The Lending Club platform has now facilitated loans totaling over $13.4 billion since inception.
- Operating revenue in the third quarter of 2015 was $115.1 million, compared to $56.5 million in the same period last year, an increase of 104% year-over-year. Operating revenue as a percent of originations, or revenue yield, was 5.15% in the third quarter, up from 4.85% in the prior year.
- Adjusted EBITDA was $21.2 million in the third quarter of 2015, compared to $7.5 million in the same period last year. As a percent of operating revenue, Adjusted EBITDA margin increased to 18.4% in the third quarter of 2015, up from 13.3% in the prior year.
"The third quarter demonstrated the operating leverage inherent in our business model, with marketing and operational efficiency delivering record contribution margin, flowing through to higher than planned EBITDA and GAAP profitability," said Carrie Dolan, CFO. "We remain excited by the opportunity that lies ahead and will continue to invest in product, automation, risk management and channel development to strengthen our platform and continue to penetrate and further expand our addressable market. We head into the fourth quarter with strong momentum and the confidence to raise our outlook for both revenue and margin."
According to Lending Club, the operating expense for a traditional lender is 5-7% while the operating expense at Lending Club is about 2%. Unlike traditional lenders, Lending Club doesn’t require spending money in reserve requirements and branch infrastructure. Lending Club is expanding its business lines. In Q3 2015, it rolled out a business line of credit product, ranging from $5,000 to $300,000, giving small businesses flexible access to affordable credit with interest rates starting at 5.9%.
It recently opened to retail investors in six new states during the third quarter and another three states subsequent to quarter end. The states include Arkansas, Iowa, Indiana, Kansas, Missouri, Nebraska, Oklahoma, South Carolina, and Tennessee. It also released a set of application programming interfaces (APIs) under its new Lending Club Open Integration program that allows online advisors and broker-dealers to effortlessly offer Lending Club investments to their clients.
A long-term investment strategy coupled with customer experience and data & underwriting excellence will contribute to Lending Club’s profit. The Q3 2015 earnings at Lending Club have already driven curiosity about its Q4 2015 earnings in the minds of analysts. However, Lending Club estimated the total operating revenue for the entire FY 2015 to be between $420 million and $422 million while the adjusted EBITDA margin is estimated to be 15.5%, which is same as this quarter. For the FY 2016, Lending Club is estimating a YoY growth of 70% in operating revenue and the adjusted EBITDA margin of 18%. That’s huge!
Do you agree with Lending Club’s estimation? Let’s discuss it @abolirg and @letstalkpaymnts.