LendingClub: Bringing The Sizzle Back

| About: LendingClub Corporation (LC)

Summary

LendingClub beat Q4 estimates signaling a turnaround is on track.

The market is misinterpreting Q1 guidance as negative.

The online lending marketplace is on pace to return the focus back to borrower growth.

After the close on Feb. 14, LendingClub (NYSE:LC) reported further progress on the turnaround from the issues related to the founding CEO. The online lending marketplace has made significant strides since the May collapse that left some fearing the company wouldn't survive.

Source: LendingClub presentation

The stock rebounded to $6.70 and highs not seen since the resignation of Renaud Laplanche prior to the release of the Q4 results. Is LendingClub a buy on the after-hours dip following some disappointment surrounding guidance?

LendingClub reported the second quarter of sequential revenue gains and reduced losses. The ability to stabilize and slightly grow the loan originations since the May issue was a paramount requirement for the marketplace.

The company boosted revenues by stabilizing originations throughout the period by reducing incentives. All the while, LendingClub doubled fees from servicing loans though still a relatively small $23 million in revenues.

The market possibly doesn't like that originations only grew from $1,955 million in Q2 to just $1,987 million in Q4. As well, guidance for a sequential decline in revenues to around $120 million in Q1 possibly disappoints investors. The market though probably didn't understand that LendingClub cut about 6% of loan volumes in early January due to a reduction in low quality borrowers.

The key is that the new management team has remained conservative during this turnaround period. The Q4 revenue guidance at the time of the Q3 earnings release was only $116 to $123 million. LendingClub ended up generating $129 million so investors should take the Q1 guidance of $117 to $122 million with a grain of sand.

Conversely, even the recent history of conservative guidance didn't stop the company from projecting full-year 2017 revenues of $565 to $595 million. This guidance assumes revenue of $448 to 473 million in last three quarters of the year in comparison to the reported revenues of $344 million for that period last year. LendingClub is forecasting 25% growth at the mid point. The end result is that annual revenues are still growing.

Source: LendingClub Q416 presentation

The real important news is that banks returned to the platform without incentives this quarter. Banks funded 31% of loans during the quarter and a new hedge fund like LendingRobot is prominently raising funds to invest in loans on platforms like LendingClub or other fintechs.

So while all the top line numbers are good, the company as well made the wise decision to continue funding engineering and product development. Those expenses jumped 36% over last Q4 to $32.5 million. LendingClub now spends over $125 million at an annual rate on R&D helping squash competitive threats.

The key investor takeaway is that LendingClub remains on pace to bring the sizzle back in 2017. Based on the after hours dip, the stock has an enterprise value of only $1.7 billion with $800 million of cash on the balance sheet. The stock is exceptionally cheap trading at 3x revenue and returning to solid growth rates.

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.

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Tagged: , Credit Services, Earnings
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