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What the Lending Club IPO Will Mean for Investors

by Peter Renton on June 20, 2014

ipo on blackboard

Unless you are brand new to this industry you will likely have heard about the forthcoming Lending Club IPO. It was first mentioned publicly 18 months ago in this interview with Renaud Laplanche at LeWeb12 and has been covered a great deal in the press this year.

Unfortunately, getting anyone at Lending Club to provide much meaningful information about the IPO is quite difficult. The most I have seen Renaud Laplanche, CEO of Lending Club, talk about the IPO was in this interview with Simon of LendingMemo published earlier this month.

Lending Club is very different to most companies who go public. As Laplanche shared in the LendingMemo article their primary reason is not to raise capital – it is more of a marketing exercise. They are using the IPO as “an opportunity to raise awareness for the company and better establish the brand.”

What is unique about Lending Club is that they already have most of the pieces in place to go public. In fact, I heard Laplanche say a while ago that as a public company Lending Club’s regulatory burden will reduce slightly from where it is right now. Today, they are a quasi-public company already. Given the SEC regulation of this industry Lending Club has had to produce public financials for many years. You can search the SEC database for all 10-K, 10-Q and 8-K filings from Lending Club dating back to 2008 or you can see this information on Lending Club’s SEC Filings page.

Four Benefits for P2P Investors

But in this article I want to dig a little deeper and look at what the IPO will mean for investors like you and me.

1. Open to investors in all 50 states

Today Lending Club is only available to investors today in a limited number of states. But once they are a public company, they will be able to take advantage of what is called a blue sky exemption. This means that the state restriction will go away and Lending Club will become open to investors in all 50 states. This does not happen automatically so it will not change overnight but shortly after the IPO Lending Club should be open to investors in every state.

2. Huge cash infusion for Lending Club should mean more options for investors

Every successful IPO results in a large cash war chest for the company going public. Lending Club already has a strong balance sheet and has been profitable for some time. It generated $20 million in cash from operations in the first quarter this year according to their latest 10-Q. So, while it doesn’t necessarily need the money a large cash war chest will give them plenty of options. We may well see some more acquisitions from Lending Club similar to their Springstone Financial deal announced in April. This will eventually lead to new opportunities for investors that will help us diversify our portfolios even more.

3. A more established brand

Right now if you ask the average person on the street if they have heard of Lending Club the vast majority will say no. Will an IPO change that dramatically? No. But it will certainly help. There will be a huge amount of coverage of Lending Club in the business press that will vastly increase Lending Club’s brand recognition. This will help attract new investors as well as new borrowers. And while a more established brand might not help investors directly, it will reduce the platform risk as Lending Club becomes a stronger company.

4. A stronger industry

The Lending Club IPO will bring many new investors of all kinds (retail, high net worth, institutional and VCs) into this industry for the first time. I think this will be a case of a rising tide lifting all boats where many people will want to invest in Lending Club and some will look at the other players in the industry. This should lead to an influx of cash into Prosper as well as some of the nascent players in both the consumer and business lending spaces. Again this will lead to more options for investors in the future.

The Downside of an IPO

A Lending Club IPO will not be all good news. We are already seeing some of the negatives for investors as Lending Club prepares for their IPO. For example, we are no longer able to see daily updates to the loan history. Also, Lending Club has done away with borrower loan descriptions as well as the ability for investors to ask borrowers questions.

Lending Club will also have to deal with the demands of Wall Street and their obsession with quarterly earnings and the resultant focus on the short term. There will be new external pressures on Lending Club that have not been there before. Let’s hope Laplanche and his team keep their eyes focused on what is best for the long term growth of Lending Club.

What Will Lending Club’s Valuation be at the IPO?

Lending Club’s valuation has been garnering a lot of attention in recent months. Their most recent funding round valued the company at  $3.8 billion. This makes Lending Club one of the most valuable private companies in the country. But no doubt we will see a much high valuation come IPO time.

Let’s put their current valuation number in perspective. Based on 2013 financials Lending Club’s P/E (price to earnings) ratio is currently 520 and P/S (price to sales) ratio of 39. These numbers seem outrageous until you look at other companies that have gone public in recent months. For example, Twitter went public in November last year with a P/S ratio of 77. They had no P/E ratio because they were still losing money.

Lending Club is positioning itself not just as an online platform but as the financial services company of the 21st century. They want to be the Chase or Citi of tomorrow. While they clearly have a long way to go I think this is the rationale behind Lending Club’s heady valuation.

A Fun Contest for Readers

Clearly Lending Club’s valuation will be the source of much debate once they announce their official intention to go public. So, I thought Lend Academy readers could add to this debate with a fun little two-part contest.

1. I want you to share what you think Lending Club’s valuation will be when they go public. Now, to be clear this is not their valuation after their first day of trading but the valuation based on the price the underwriters set for their IPO.

2. The date they will go public.

In the comments section please provide your best guess as to both these numbers. There will be Lending Club goodies for the person who guesses closest to the final numbers in each category. And feel free to let me know what you think about the whole IPO story.

{ 31 comments… read them below or add one }

Wiseclerk June 20, 2014 at 8:13 am

Ok, I’ll bite
1) 6.2B
2) Sep. 23rd, 2014

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Emmanuel June 20, 2014 at 8:58 am

Peter,

It seems their IPO is on everybody’s mind, here a similar article I wrote 1 week ago:
http://seekingalpha.com/article/2267253-lending-club-ipo

My bet is Q4 2014

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Peter Renton June 20, 2014 at 9:14 am

Thanks Emmanuel, good article. BTW, to be eligible to win the contest you have to enter a specific date.

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Bryce Mason June 20, 2014 at 11:15 am

December 1st, 2014. $8B.

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Matt Burton June 20, 2014 at 12:41 pm

September 23rd 2014 $6B

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RP June 20, 2014 at 3:22 pm

Sept 17, $6.3B

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CaseyC June 20, 2014 at 5:07 pm

Oct 1, $4.2 billion

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Mike Deck June 20, 2014 at 5:42 pm

October 3, 2014, $7.1B

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Marc June 20, 2014 at 5:56 pm

November 20, $8.1 B

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Raymond June 20, 2014 at 7:54 pm

Oct 4, $5.5B

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Laurie June 21, 2014 at 1:39 am

Peter, what price per share do you think it would be worth today?

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Peter Renton June 21, 2014 at 6:28 am

Based on their 8-K filed on April 16, 2014 Lending Club had 184.8 million shares outstanding and the price per share of the funding round they closed in April was $20.34 per share. That gave the company a valuation of $3.76 billion. That was just over two months ago.

Given that their valuation increased from $1.55 billion in April 2013 to $3.76 billion in April 2014 their value is increasing at more than 100% per year – matching their growth rate in loan originations. So, based on that I would put their valuation at close to $4.5 billion today.

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Simon Cunningham June 21, 2014 at 11:46 am

Nov 28, $7.25B

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Tim June 21, 2014 at 4:32 pm

$5.5 billion, December 17th.

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JJ Hendricks June 23, 2014 at 8:18 am

$5 billion
Sept 21th 2014

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Peter Renton June 23, 2014 at 11:00 am

Thanks for the responses everyone. So, the averages thus far are $6.29 billion valuation and an IPO date of 10/20/14. We will see how the wisdom of the crowd fares. I will be taking entries for this contest through the end of the month so feel free to add your opinion below.

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Randawl June 23, 2014 at 11:55 am

$6.25b, December 10th

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HotKarlMalone June 23, 2014 at 1:10 pm

$7.9 billion
November 6, 2014

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Chris June 24, 2014 at 1:48 pm

7.6B sept 27 2014

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CA-Lender June 25, 2014 at 12:17 pm

$7.55b,
Oct 8th, 2014

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Slava June 25, 2014 at 12:27 pm

$9,8B
Nov 27, 2014

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Craig Hollyfield June 25, 2014 at 3:07 pm

Contest aside, I think it is a shame that LendingClub has not recognized the value of their first and most loyal supporters, us retail folks, by setting aside some of the initial offering for us to purchase at the offer price. As I have suggested before to their staff, shares could be allocated based upon participation ($) over the years .

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Peter Renton June 25, 2014 at 9:15 pm

Craig, As I said in the article, in my conversations with LC management they have said that they would like to do something for their investors. So the idea is at least being discussed.

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Laurie June 26, 2014 at 1:18 am

Keep us posted Peter. I asked them the same question and they didn’t want to comment at this time. I’d be interested too. I guess I didn’t read your whole article either (information overloaded these days). Yeah, why not let some of us individuals in on it because you know there must be some big institutions getting in on it. Anyway, thanks for running point on this!

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NealS June 25, 2014 at 9:05 pm

$6.45B, September 15, 2014.

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Mr. 1500 June 26, 2014 at 6:01 am

12 billion, 10/7/2014 (go big or go home).

I echo the sentiment of others in that I hope Lending Club sets aside some shares for us little guys. GoPro did this through LOYAL3: https://ipo.loyal3.com/gopro

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Peter Renton June 27, 2014 at 3:42 pm

News broke about the IPO today – LC has chosen their underwriters:
http://www.ft.com/intl/cms/s/0/1f5f9356-fe0e-11e3-bd0e-00144feab7de.html?siteedition=intl

And in the WSJ story:
http://online.wsj.com/articles/lending-club-has-started-process-of-going-public-1403890688
there was this quote: The company is contemplating allocating more shares than is typical to small retail investors, though the details are being ironed out, people familiar with the deal said.

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Peter Renton June 28, 2014 at 9:56 am

Given the new stories that I linked to above this contest is now over. Thanks to everyone who entered and good luck. Looks like we may have winners by the end of the third quarter. Stay tuned.

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alexander Lowell August 26, 2014 at 1:48 pm

5.8B, November 2014

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Lee Rusk September 23, 2014 at 8:49 pm

Nov. 20, 2014
7.75 B

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Ben Nettleton October 8, 2014 at 1:02 pm

6.7 Nov. 23

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