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LendingClub Results Fall Short of Expectations

- By Julie Young

LendingClub Corp. (LC) is one of the oldest lenders in the online lending market. Founded in 2006, it began offering its shares publicly in 2014 with a $1 billion initial public offering. Since 2014, the company has seen some ups and downs, with the stock now down 86.39% from its IPO price. Below is a look at its most recent fourth quarter earnings report with some insight on its current position.


Originations

Originations for the fourth quarter of 2018 were $2.871 billion, decreasing from the previous quarter but gaining in a comparable quarter comparison. For 2018, total originations increased to $10.881 billion from $8.987 billion.

Revenue

Revenue for LendingClub is highly dependent on both fees and interest. In the fourth quarter, the company had total net revenue of $181.5 million, missing estimates by $650,000 but increasing from $156.5 million in the fourth quarter of 2017. Revenue for the year was also higher at $694.8 million versus $574.5 million in 2017, for a 21% annual revenue increase. This represents slightly slower annualized revenue growth than the last three years has shown at 39.6% but slightly higher than its last trailing 12-month revenue report at 15%.

Cost of sales for the company were down considerably to $109 million in the fourth quarter and $486 million for full year of 2018. Sales expenses primarily include interest expenses and net fair value adjustments. For the full year of 2018, sales expenses were down 19%.

Earnings

On the bottom line, the company reported an adjusted net loss of $32.4 million, down from its GAAP net loss of $128 million for the year. It had an adjusted net loss of $4.1 million for the quarter, down from its GAAP net loss of 13.5 million. Adjusted loss per share of 1 cent for the fourth quarter missed expectations by 3 cents. For the full year, adjusted earnings per share were 8 cents, down from 18 cents in 2017.

Overall, the losses for the company decreased from the comparable quarter and year-over-year. The GAAP improvements were primarily attributed to income from controlling interests as total operating expenses were higher. Notably, sales and marketing, and general and administrative expenses topped off the majority of its indirect operating liabilities. Both line items gained over 15% in 2018.

In the fourth quarter the company implemented several new cost measures and also adjusted for legal expenses. These two non-GAAP adjustments helped the earnings results substantially. A cost structure simplification added $6.7 million to net income and a legal adjustment added $2.6 million.

Key takeaways

LendingClub reported impressive total net revenue growth in the fourth quarter and full year. The bottom line continued to be negatively affected by high marketing and general expenses which both increased in 2018. The results showed that demands are growing for online lending products. For public investors, however, a key area of focus for the future will be on the simplified cost structure, along with expense management in marketing and general as these costs have been steadily detracting heavily from the bottom line.

Analysts were somewhat disappointed in the results as well as guidance, which estimated the adjusted net loss for 2019 between $29 million to $9 million. Following the earnings results, BTIG reduced its stock estimate to $6 from $7, citing reduced confidence in Ebitda.

Stock Performance

As of Feb. 20, LendingClub trades at $3.37. In the online lending sector, it is significantly trailing the one-year gain of OnDeck (ONDK) with a one-year total return of -8.61%.

Source: Morningstar.

The stock has a three-year annualized loss of 25.92%. Year to date, it has a gain of 37.26%.

Disclosure: I own shares of LendingClub.

This article first appeared on GuruFocus.