Alternative Finances

Lending Club Earnings Reflect Bullish P2P Marketplace

It is a good time to be Lending Club.

Shares in the P2P lending platform ticked up 4 percent this week, according to the Associated Press, following a stronger than expected Q1 result and a revised outlook for the rest of the year that has improved, thanks to the surging popularity of peer-to-peer loans as an alternative to their bank-backed counterparts.

That may have been just the good news investors are looking for, as the firm’s stock has lagged (dropping 30 percent) since its IPO last year, disappointing some investors who were (and are) expecting big things from the site. Lending Club is the largest player in its space, but does not lend or bank any of the funds itself. Instead – as is the hallmark of the P2P economy – Lending Club operates as the technological middle man, the platform where potential borrowers and their future lenders meet and come to terms. Lending Club then collects a fee on the deals it match-makes into existence.

During Q1, the San Francisco-based firm clocked in with $81.2 million in revenue, reported the Associated Press, beating the average analyst prediction of $74.7 million. Lending Club now reportedly expects its full-year revenue to be in a range of $385 million to $392 million, up from its previous range of $370 million to $380 million.

Even on the upswing, P2P still represents a small fraction of the $700 billion consumer loan market. But it is a market that is growing and changing fast.

And Lending Club is getting behind more loans as consumers are catching on to the P2P option. In the first 90 days of 2014, Lending Club originated $791 million in loans – as compared to Q1 2015, when the firm originated $1.64 billion in loans. And as those loans expand, so too does the company’s user base. When the company got its start in 2009, 53 percent of its borrowers were 35 or younger – now, almost half of its borrowers are between the ages of 36 and 50.

With the popularity of online lending, and the host of businesses in the startup community looking to build off the P2P model, the old guard is trying to get in on the action. Goldman Sachs is reportedly putting a toe into online lending, and Lending Club and other firms like it are increasingly attractive to traditional banking partners that are hoping to stay competitive in consumer loans.

And while the world beating a path to one’s market space is not a bad thing for Lending Club, it is turning into an expensive one as Lending Club fights to maintain its position as Alpha in the P2P lending space. On sales and marketing alone last quarter, the company spent $35.8 million, a 75 percent jump from the $20.6 million it spent last year, according to the Associated Press. And overall, the company’s spending was up as expenses increased sharply in the quarter from a year earlier, particularly in engineering and product development. The company also upped the sums it gave out in stock-based compensation to recruit new engineers and employees.

Lending Club still has its challenges – especially with its high stock prices, which have an inclination to make investors nervous. Even during the firm’s run of depressed stock prices, Lending Club shares cost $348 for every dollar of earnings Lending Club brings in, far more than the $24 average for companies in the Standard & Poor’s SmallCap 600, an index of small-company stocks.

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