LendingClub: About That $3.75 Target

| About: LendingClub Corporation (LC)


LendingClub is down nearly 5% on a negative analyst call.

The online lending industry continues consistent growth supportive of a rebound in the leading marketplace.

The stock valuation, combined with expected growth support higher stock prices and not a return to the death watch valuation of May.

After a volatile few months, LendingClub (NYSE:LC) has stabilized around $6. The online lending platform has mostly stayed out of the news over the last couple of months outside of the hiring of some industry veterans.

The stock currently trades with an enterprise value of around $1.6 billion, making the news of an analyst target of $3.75 intriguing and perplexing.

The biggest issue with LendingClub right now is that a lot of information surrounding the rebound in the business is almost non-existent. The key, though, is that the sector is back into growth mode. The leading platform for peer-to-peer loans is in a mode of convincing institutions to return, making it difficult to see whether LendingClub is benefiting from the market growth just yet.

The Orchard Marketplace Index continues to show a consumer marketplace lending industry in constant growth mode. The index designed to measure the loan performance of online lending to U.S. consumers grew to 1,474.81 for the week of October 7, up from 1,469.58 in the prior week. The index was at 1,402 in the prior-year period.

Click to enlarge

Source: Orchard Platform

The Wedbush target of $3.75 values the stock at only $1.5 billion. Striping out about $800 million in cash, the enterprise value would drop to a meager $700 million.

The business is stabilizing, with a revenue run rate of roughly $110 million expected in Q3 when removing incentives of around $10 million. Analysts forecast revenues to rebound to well over $550 million next year, based on banks returning to the lending platform.

In essence, Wedbush targets the stock trading at roughly 1.3x forward revenue estimates. This valuation is commensurate with the death watch value I prescribed back in May, when the online lending marketplace was in the middle of the crisis caused by the departure of the founding CEO.

For comparative purposes, other online platforms like Yelp (NYSE:YELP) and Twitter (NYSE:TWTR) trade at much higher multiples. Both platforms were hated by the markets, with Yelp even trading down to a similar level as LendingClub to start the year before the big rally.

YELP EV to Revenues (Forward) Chart

Sure, Yelp and Twitter rely on advertising spending rather than transaction revenues, but both provide examples of the market turning from too bullish to too negative and back to bullish. Fretting over the business prospects at the lows didn't reward shareholders in either of the above cases.

The key investor takeaway is that the Wedbush price target makes no sense. If anything, investors should expect the Q3 results released in early November will likely provide more evidence of investors reengaging with the platform, making the stock a good pick-up below $6.

Disclosure: I am/we are long LC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.