Posted on Monday, Mar 2nd 2015
Peer-to-peer lending platforms are seeing a strong opportunity in small business and retail consumer financing markets. Analysts estimate the small business loans market to be a $300 billion market. They also estimate the credit card refinancing market to be a $800 billion market. Billion Dollar Unicorn club member Lending Club is among the largest player in the peer-to-peer lender category.
Lending Club’s Offerings
San Francisco-based Lending Club (NYSE: LC) was founded in 2007 by their current CEO and entrepreneur Renaud Laplanche. The company was formed to help create an alternative to the traditional banking system that would not only be as efficient but would also provide lower rates to borrowers and better returns to investors. Lending Club thus built an online credit marketplace that lets investors earn interest income when they provide loans to creditworthy borrowers.
Their technology-enabled marketplace is able to offer an efficient process to allocate capital between borrowers and investors making them world’s largest online marketplace for such loans. Lending Club’s platform offers borrowers a fast online application process that eliminates the need for the often time-consuming loan application process deployed by traditional banks. It automates and simplifies the process of application, data gathering, credit rating and scoring, loan funding, investing and servicing, regulatory compliance, and fraud detection. The investor has the advantage of being able to earn risk-adjusted returns through access to loans offered to borrowers who have been credit checked. Investors can benefit from the transparency and flexibility to modify their investment parameters such as credit attributes, financial data, and loan characteristics.
They have also opened their platform to partners such as banks, asset managers, and insurance companies who can use their marketplace to meet their investment needs. Recently, they also tied up with Alibaba to help businesses get short-term credits of up to $300,000 for a period of six months to purchase products from Alibaba’s Chinese vendors. Their platform has helped them deliver more than $7.6 billion in loans to borrowers since their inception. It also helps borrowers get loans in increments as low as $25.
Lending Club’s Financials
Lending Club charges their customers a fee for transactions conducted on their platform. Revenues have grown from $33.8 million in 2012 to $98 million in 2013. Over the same period, adjusted EBITDA improved from a loss of $4.9 million to $earnings of $15.2 million. Last week, Lending Club reported their financial results, surpassing market expectations. Revenues for the year grew 118% over the year to $213.4 million. Adjusted EBITDA improved 40% to $21.3 million. For the recently reported quarter, revenues grew 108% to $69.6 million with an EPS of $0.01. The market was looking for revenues of $66.3 million with an EPS of $0.01 per share.
For the current quarter, Lending Club projected revenue of $74 million-$76 million and an EBITDA of $6 million-$9 million. The market was looking for revenues of $72.8 million and an EBITDA of $9.5 million. Lending Club forecast the year’s revenues at $370 million-$380 million, and EBITDA of $33 million-$42 million, compared with the Street’s estimates of revenues of $372 million and EBITDA of $44.2 million.
The miss in the earnings outlook was attributed to the company’s current focus on market expansion and technological advancement. They are, at present, not focusing on improving margins.
Till December 2014, Lending Club was venture funded with $392.2 million from investors including Black Rock, T.Rowe Price, Sands Capital Ventures, Coatue Management, SDT Global, FinSight Ventures, Google Capital, Foundation Capital, Amidzad Partners, Canaan Partners, Norwest Venture Partners, Morgenthaler Ventures, SVB Financial Group, Gold Hill Capital, Union Square Ventures, Thomvest Ventures, and Kleiner Perkins Caufield & Byers. In April 2014, they raised $65 million from these investors at a valuation of $3.8 billion, up from the $1.5 billion valuation in May 2013.
In December 2014, Lending Club went public and raised over $1 billion by selling 66.7 million shares at $15 each. Their public company status also opens a wider market to them as they are now governed by federal regulators and can operate in the 24 states where they had earlier been banned to operate. Their stock is currently trading at $20.37 with a market capitalization of $7.36 billion. It touched a high of $29.29 in December 2014.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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