What To Watch For When LendingClub Releases Earnings

After a strong debut on the public markets at $14 per share in its Initial Public Offering (IPO), LendingClub has taken investors on something of a wild ride though the ups and downs of marketplace lending. Today, as the market waits for its Q1 earnings report, the company’s stock was trading for less than $3 a share.

So, what are the numbers to watch when LendingClub lets loose its latest round of figures?

Earnings last quarter underwhelmed, despite a bump in revenue, because expenses more than kept pace during the time period and undermined the whole result. Going into the Q1 earnings today, the Zacks Consensus Estimate (derived from various analyst predictions) is expecting to see moderate year-over-year growth in both earnings and revenue.

In general, LendingClub does not outdraw analysts with its earnings, having beaten the Zacks Consensus Estimate in only one of the trailing four quarters. Its shares have lost 25.1 percent in the past three months against the industry’s growth of 2.8 percent.

Investors are expecting — based on the strength of loan originations on the platform — that there should be observable growth in transactions fees. The firm’s investments in channel diversification and its offering of a range of credit products for a range of customers are generally seen to be likely sources of continued growth.

Management projects total net revenue in the first quarter to be $145 million to $155 million, up from $124.5 million recorded in the prior-year quarter. Zacks Consensus Estimate for sales for the quarter is $152.2 million,  with growth of 22.3 percent on a year-over-year basis.

LendingClub projects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to be nearly $5 million to $10 million. Management also expects net loss of $25 million $20 million compared with the year-ago loss of $29.8 million.

The Elephant in the Room

LendingClub will enter this earnings arena with an unusual weight around its neck: the fact that its stock crashed to an all-time low a week ago on the news it was being sued by the Federal Trade Commission (FTC) for adding on hidden fees and charging borrowers even after they no longer had a loan with the company.

Bloomberg reports indicate that the FTC contends the company’s behavior violated federal laws that protect consumers from deceptive and unfair practices. As a result of the FTC complaint, Bloomberg noted the online lender’s stock fell 14 percent to $2.80 a share, off 32 percent so far this year. Since its initial public offering, LendingClub’s stock has declined 80 percent.

“Many consumers are forced to pay overdraft fees, while other consumers are unable to pay other bills because they do not have access to the money that defendants improperly withdrew,” the FTC said in its lawsuit, which Bloomberg reported was filed in San Francisco.

The FTC contends LendingClub — which has publicly and repeatedly vowed not to slap borrowers with hidden fees — took hundreds of dollars (and in some cases thousands of dollars) in fees from the loans.

The FTC said LendingClub also claimed investors backed their loans, even though it knew borrowers would never get a loan, which prevented them from borrowing from another lender.

Additionally, the FTC contends LendingClub even withdrew double payments from consumers’ accounts and charged those that no longer owed any money on their loans.

“This case demonstrates the importance to consumers of having truthful information from lenders, including online marketplace lenders,” said Reilly Dolan, acting director of the FTC’s Consumer Protection unit. “Stopping this kind of conduct will help consumers make informed choices about loan offers.”

Should be an interesting Q&A this time around.