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Delving into Lending Club’s Latest Financial Statements

by Peter Renton on February 15, 2012

Yesterday Lending Club released their latest 10-Q filing that they are required to submit every quarter to the SEC.  This filing is for the 4th quarter of 2011, Lending Club’s fiscal 3rd quarter.

These filings contain a great deal of information, most of which is superfluous to the average investor. There are a few things I like to focus on and I am sharing these with you today in the table below. I have summarized some of the data from their Profit and Loss statement (called the Statement of Operations in the filing) and compared the December 2011 quarter to the previous quarter as well as the same quarter a year ago (note the numbers are for the quarter ending in the month displayed).

Summary of Lending Club Financials in 2010-11

Total Income Has Increased Dramatically at Lending Club

Borrower origination fees rose as expected and total revenue was up 29% over the previous quarter and up 177% over the same quarter one year ago.  I was surprised that loan servicing fees were flat but it could have been influenced by the “no fee” promotion on large loans at Lending Club started in December. Other income is a combination of many things such as fees paid by LC Advisors – you can read the full report if you want more details on that.

Expenses Also Continue to Rise

One would expect in a fast growing company like Lending Club that expenses would be rising fast. They continue to add people and this is reflected in the significant increase in administrative expenses. The official response to this increase as stated in the filing is that it was “primarily the result of higher expenses for personnel, facilities costs, licenses, permit and fees, and bank service charge.”

Marketing expenses also increased although not as much as I would have expected. Engineering costs stayed flat last quarter but no doubt that figure will rise as they add headcount there.

Lending Club Still Burning $1 Million in Cash a Month

When I chatted with CEO Renaud Laplanche several months ago he said that Lending Club could easily be at break even but they have made the strategic decision to grow rapidly. Their investors supported this and it is no secret that the growth is happening.

At their current burn rate of around $1 million a month they have enough cash on hand to see them through the end of next year but I expect we will start to see some dramatic improvements to the bottom line by the end of the year.

The biggest driver of revenue is borrower originations and the December 2012 quarter should show revenues at least double the number of the same period last year. I expect to see total revenue of around $10 million in the last quarter and while costs will also have to rise that should bring them close to break even if not in positive territory. I have no inside knowledge about these numbers this is just my hunch.

It will be interesting to see how this unfolds. One thing is for certain – this is going to be a big year at Lending Club.

{ 10 comments… read them below or add one }

Bryce M February 15, 2012 at 8:40 pm

My analysis of revenues to expenses, the efficiency ratio, has improved from 2.0 to 1.7. This is their best quarter yet. A ratio of less than 1.0 would imply profitability.

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Peter Renton February 15, 2012 at 9:40 pm

@Bryce, I think we will find this efficiency ratio will continue to improve each quarter from now on. Revenue is certainly going to be rising sharply.

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Dan B February 15, 2012 at 9:43 pm

Peter…………The origination fee being flat had nothing to do with the “no fee” promotion. No actual fees were to be collected on notes of that era until sometime in January & this data goes only to December 11th. So that’s not it.
My guess for the reason that the servicing fees appear flat is that they did some accounting thing to have those fees that were collected for institutional investors go through LC Advisors before being funneled back to LC. Or they categorized more entities as “institutional”. If my guess is wrong then my question would be what fees would LC Advisors pay Lending Club? Fees for what?

PS……..This month is going to be a monster month. Probably over $39 million in originations.

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Peter Renton February 15, 2012 at 11:35 pm

@Dan, I wasn’t aware of the December 11th cut off for the numbers, so thanks for sharing that. I know they changed accounting methods on October 1st so that could have had something to do with it, too.

And yes, this is going to be a huge month. I noted on Twitter yesterday that they were at $26 million halfway through the month – I am sure they could do $50 million if they wanted but I expect they will slow it down later in the month.

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Ryan February 16, 2012 at 10:44 am

As a CEO, I imagine it is a lot more fun to burn through cash when you think the company could be profitable if you were willing to cut growth. Still, I’d like to see LC & Prosper turn a few profitable quarters.

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Peter Renton February 16, 2012 at 1:37 pm

@Ryan, You are not alone there. I think there a large number of investors, both individual and institutional who are on the sidelines waiting to see if these companies can operate profitably.

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Em February 24, 2012 at 7:30 pm

@Ryan I suppose the $500K a year salary doesn’t hurt either.

http://investing.businessweek.com/research/stocks/private/person.asp?personId=9871831

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Peter Renton February 26, 2012 at 5:56 pm

@Em, The salaries of all senior directors at Lending Club and Prosper is available publicly. I don’t begrudge them a high salary if they are performing well.

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Ron May 31, 2012 at 7:17 pm

Lending Club is quickly heading toward a billion dollar corporation with incomes growing by over a million per day. With any explosive growing company, the key is controlling expenses moving toward profitability as soon as practical. From an investor point of view, I am not only interested on ROI, but also profitability for the company, Lending Club. Whenever they get to a point of posting consistent profits, then investors will not be an issue. I am most interested/concerned about the long-range opportunities for investments, returns , and security.

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Peter Renton June 3, 2012 at 11:34 pm

@Ron, While Lending Club has no shortage of investor money right now I agree that the floodgates will open, particularly for retail investors, when they show they can make a profit doing this. Unfortunately for investors like you this is not going to happen any time soon. In my conversation with the management team at Lending Club they have told me that while profitability is an important goal, so is growing the company as fast as possible. They have deep pocketed and very committed investors so I really don’t think it is an issue any more. They will turn a profit some time in 2013 but until then I know many people will hold some money on the sidelines.

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