Alternative Finances

A Profitable Lending Club Surprises Wall Street

After some months of questions surrounding Lending Club's future on the public markets and what it might mean for other high-profile startups as they enter the IPO orbit, the alternative lending powerhouse has delivered a surprisingly profitable performance in Q3.

Lending Club clocked $950,000 in net income in Q3 — a vast improvement over the firm's $7.4 million loss at this time last year. It also means Lending Club has joined the profitable club and bested The Street's predictions of a $6 million loss.

After-hours trading liked the news. Shares were up 6 percent to $14.40. However, Lending Club's IPO price was $15, meaning reaction will have to continue to trend upward strongly for real market cap progress to be made.

Lending Club originated $2 billion in loans last quarter for the first time. The firm also saw revenue more than double to $116 million. Traders, however, continue to worry that regulatory attention and ever-proliferating competition will, in the long term, pressure Lending Club's ability to produce in the marketplace lending space.

Return rates for those who buy notes through Lending Club are down — 8.6 percent as of Nov. 2014 and 7.9 percent as of Sept. 2015. That stimulates more borrower action on the site as it indicates lower costs for them.

That might mean fewer investors that want to lend on Lending Club, but Renaud Laplanche, Lending Club's CEO, believes “the negative impact is less than the impact on the borrower side.”

Other investors are worried about Lending Club's costs, particularly relative to its mainstream competition.

Laplanche thinks the concerns are overstated, particularly given his firm's size.

“There’s been some noise … about the space becoming crowded and getting more expensive to acquire customers. That might be the case for smaller players,” the CEO said, but Lending Club has “network effects, scale and a bigger brand that makes it easier to acquire customers.”

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