The company likes to place itself as the banking industry’s equivalent of Netflix, Spotify or Expedia, saying it is turning “the banking system into a frictionless, transparent and highly efficient online marketplace, helping people achieve their financial goals every day.” Borrowers get faster and cheaper access to loans, and lenders get higher returns than if they had placed their money in a bank.
However, the company was hit last year by a scandal regarding internal controls and governance. Not an Enron scale scandal but damaging for a financial institution that relies on confidence and brought increased regulatory scrutiny. Most importantly the reputational damage hit originations and growth as capital providers, essential for loan growth, avoided the platform. The stock fell below $4.50 having traded above $25 after an IPO at $15.
As a result the CEO/founder Renaud Laplanche was replaced by Scott Sanborn last June. Mr Sanborn has reached out to capital providers to reboot growth. His strategy has succeeded with Q2 results showing a 35% increase in revenues with 10% increase in originations. Revenues are now forecast to exceed the Q1 2016 level (prior to the scandal) next quarter Q3 and accelerate growth in Q4.
The valuation now looks appealing. At yesterdays close of $6.45 the company had a market cap of $2.6bn which means, adjusting for cash, the company trades on a P/S ratio of c.3.5.
Lending Club itself has raised its guidance and says “We are excited about the momentum building in the business and the massive opportunity that lies ahead”.
With governance issues resolved, capital providers returning and trillions of dollars of loans out there waiting to be disrupted – I would be excited too.
This is not a recommendation to buy or sell. Stocks are not suitable for all investors. Please do your own research.
Submitted October 11, 2017 at 01:41AM by InterestingNews1 http://ift.tt/2xym2il
