Why Wall Street is in love with Lending Club

Yahoo Finance

Have you heard of Lending Club? Well, if you haven't, you will now. The company filed its IPO paperwork this week and Wall Street is already hailing it as the next Orbitz (OWW) and eBay (EBAY).

"This will be one of the 10 biggest internet IPOs of all time," says Yahoo Finance tech reporter Aaron Pressman in the video above.

Following the peer-to-peer model popularized by Uber and Airbnb, Lending Club isn’t in the business of making loans itself. Instead, it helps match people who want to lend money with people who need to borrow modest amounts. It’s the possibility of creating a new online platform, similar to eBay’s auctions, that has potential IPO investors excited, Pressman says.

Lending Club started in 2007 and is an alternative to the traditional banking system. The company operates completely online and says it offers "lower interest rates and investors better returns."
According to The New York Times, Lending Club rates average about 14%.

The San Francisco-based company has facilitated over $5 billion of loans, including $1.8 billion in the first half of 2014 alone. Individual loans, which range from $1,000 to $35,000, mature within three to five years. Small businesses can ask for loans between 15,000 to $100,000.

Pressman notes that Lending Club's business model is "very sound" and has been extremely profitable. It originated $1.8 billion worth of loans in just first six months of the year, double the amount from the same period last year. Lending Club's revenue rose 134% to $86.9 million for the first half of the year, though the company reported a $16.5 million loss in the same period because of an acquisition and higher marketing budget. Last year it spent about $39 million on sales and marketing compared to the $98 million it made in revenue, reporting a profit of $7.3 million.

Even so, Wall Street has its eyes firmly set on the company. According to The Wall Street Journal, Lending Club was valued at $4 billion in a recent fundraising round.

Pressman believes Lending Club could raise even more money from investors in the coming weeks.

"This is like a merger of Wall Street royalty and Internet royalty," he says.

Still, there are some risks. The company’s models to assess the creditworthiness of borrowers have not been tested in a major economic downturn. And regulators are concerned about certain types of loans the company offers, such as those covering elective medical surgery.

Preliminary pricing and talk about the company’s market valuation will be forthcoming over the next few months. But unless the market tumbles, there should be plenty of investors lining up to get a piece of Lending Club.

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