Lending Club (LC) CEO Scott Sanborn addressed the LendIt conference in New York earlier this month and made some very interesting comparisons between the online lending industry today and the online retail industry way back in the year 2000. This was a period when new entrants, having disrupted an established industry, went through a period of pain before the survivors (such as Amazon) went on to thrive and become dominant.
The implication is that Lending Club is the next Amazon and the comparables are there. Lending Club is the first mover, it offers cost savings that can be passed on to customers and it (probably) provides a better customer experience.
The company has shaken up the industry with its peer to peer lending that cuts out traditional banks. Borrowers can borrow larger amounts, at lower rates with quicker decisions than provided by banks. Lenders can achieve higher returns with greater diversification. Lending Club, in the middle, earns origination and servicing fees.
These mutual benefits combined with good execution look like a game changer for the industry.
What I particularly like, as a potential investor, is the diversification of a new asset class. Retail margins are relatively high and loss probabilities are well understood. Lending Club's losses have been low compared to other asset classes. Returns were negative during the financial crisis but held up well compared to equities and bonds.
However what I don't like is Lending Club's execution. Disclosures about internal-control lapses and abuses are simply not acceptable for a financial institution. It is no surprise that the stock price has fallen by 80% over the past couple of years and originations have stalled for the past three quarters.
The company has taken measures to address the failures. Founder and CEO Renaud Laplanche stepped down last year and was replaced by Scott Sanborn. Mr Sanborn is a quieter operator but has moved quickly to put in place a new finance chief, operating chief, general counsel and chief capital officer.
Mr Sanborn's aims are to stabilize the business before moving back to growth once confidence is restored and with the recently announced move into autoloans.
One positive is that at least issuance has stabilized for the past three quarters.
My takeaway on this is that this is an industry waiting to be disrupted and that as market leader (with a new CEO) Lending Club is still in prime position to take it.
The risk of failure is meaningful but with the current valuation of $5.20, on a price to book ratio of just above 2 and price to revenue ratio of just below 2, the potential returns are high. If growth returns then I could see the stock price heading back towards $25.
Please be aware of the speculative nature of this post. Just my opinion. This is not a recommendation to buy or sell. Please do your own research.
Submitted April 02, 2017 at 04:47AM by InterestingNews1 http://ift.tt/2nYHmML
