Peer to Peer Lending News Roundup – August 16, 2014

During the week I share the latest p2p lending news on Twitter as it happens. Then every Saturday I take the most interesting news items and blog posts from the past week and share them here.

I have been in London this week doing some prep work for LendIt Europe so I have been a little more quiet than usual on the blog and Twitter. But I have been getting caught up this morning and there were many interesting articles this past week so you will have plenty of good stuff to read this weekend.

The Lending Model That Bypasses the Bankers from National Journal – Thoughtful article by The Atlantic writer William Cohan on the state of our industry. He raises an interesting possibility: “that the six largest credit-card issuers in the United States…have been acting like a cartel”. Read the article, it was the most interesting of the week in my opinion.

Small-Business Lender OnDeck Prepares to File for IPO from The Wall Street Journal – While everyone in this industry has been focused on the Lending Club IPO, OnDeck has been quietly preparing to go public.

The Price of Credit – Interest Rates Over Time from Orchard – Fascinating to see how the interest rates for Prosper and Lending Club have converged over time.

Peer-to-peer lending ‘here to stay’: Zopa CEO from CNBC (video) – Interview with Giles Andrews, CEO of Zopa, on the state of p2p lending in the UK.

LendingTree’s Personal Loan Revenue Exceeds $1 Million in July (press release) – LendingTree is a major source of borrowers for both Prosper and Lending Club.

Prosper Form 10-Q from the SEC – The quarterly financials from Prosper showed them basically at break-even in the second quarter on $16.5 million in revenue.

Lending Club Form 10-Q from the SEC – The quarterly financials from Lending Club showed them recording a loss of $9 million on revenue of $48 million.

Fitch Weighs in on Peer-to-Peer Lending from The Wall Street Journal – Coverage of the Fitch Ratings report that I wrote about yesterday.

Peer-to-Peer Lending Poised for More Growth: Fed from Credit Union Times – The credit union industry is paying close attention to p2p lending.

The National Rise of Peer to Peer Lending in the Newspaper from LendingMemo – Interesting research from Simon Cunningham about the coverage of p2p lending in major news publications.

What happens when a P2P company ceases trading? from P2P Money UK – P2P lending in the UK has seen a couple of platforms go out of business – this article discusses what happens to the investor money.

Peer-to-peer lending represents nearly $3 trillion market from Allvoices – Lending Club and Prosper shared a panel this week at the LeadsCon conference discussing borrower lead generation.

From the Lend Academy Forum

The Lend Academy forum is where investors go to discuss p2p lending. Below are some topics that were being discussed this week.

Payment Breakdown – How do you separate out the principal or interest of borrower payments at Lending Club.

I am confused about trading – A new note traders wonders why so many notes are on offer for a premium.

P2P picks with recent Major Derogatory or Delinquent Amount – Interesting to see the statistical analysis done by P2P Picks sometimes picks up accounts with delinquencies.

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Dan B
Dan B
Aug. 16, 2014 1:42 pm

I’m perplexed Peter. Haven’t you been saying, for a year (or more) now, that LC is operating profitably, or had reached profitability ? But now we see from the 10-Q that they lost $9 million just last quarter? So which is it? Have they been operating profitably this past year or not?

Casey C
Casey C
Aug. 16, 2014 3:36 pm
Reply to  Peter Renton

Peter, that’s a little concerning…why are they in the red?

Dan B
Dan B
Aug. 17, 2014 1:33 am
Reply to  Casey C

Of course I’m not the exalted Peter, but let’s take a quick look anyway…………………
Well their revenues more than doubled from a year ago, but their operating expenses almost tripled. Within that number, “general & administrative expenses” quadrupled from a year ago. Sales & marketing expenses seem to be rising at around the same pace as revenue, so achieving economies there appear to still be a down the road thing,…………….after 7 years in business. I could go on, but let me step aside & wait for (what I can only assume will be) Peter’s half full interpretation instead. 🙂

JJ Hendricks
JJ Hendricks
Aug. 18, 2014 11:44 am
Reply to  Peter Renton

The pending IPO itself can have a pretty big impact on GA expenses too. All the lawyers and compliance and investment bankers cost a pretty penny. That could be part of the reason for the increase in GA expenses.

Prescott
Aug. 19, 2014 2:02 pm
Reply to  Casey C

Throwing gas on the fire that is growth. This is a totally valid strategy in a atmosphere of easy money. Amazon’s been doing it for 10-15 years, I don’t think this is anything at all to be concerned about.

Simon Cunningham
Aug. 18, 2014 6:24 pm
Reply to  Peter Renton

Wow, I was not aware of this. Certainly something to watch in the coming year.

Casey C
Casey C
Aug. 17, 2014 7:48 am

It definitely adds a level of hesitance to my interest in their IPO…

Dan B
Dan B
Aug. 18, 2014 5:23 pm

JJ & Peter………………. Would you care to put some sort of dollar figure to the “pretty penny” assertion? After all, how much does an IPO cost? I know it varies, but I’m fairly certain we’re not saying this is going to be another Google or Amazon type deal.

Also, keep in mind that the $9 million loss for the 2nd quarter wasn’t some one quarter aberration. It was preceded by a $7 million loss during the 1st quarter.

JJ Hendricks
JJ Hendricks
Aug. 19, 2014 8:23 am
Reply to  Dan B

https://www.pwc.com/en_us/us/transaction-services/publications/assets/pwc-cost-of-ipo.pdf

This article says $4.7 million in expenses that can be attributed to IPO, not counting underwriting costs which are 5-7% of the proceeds. This is an average. I can’t speak to Lending Club’s specifics.

Lending Club is probably more than average. They are a financial company with lots of regulations and compliance issues. They are not your typical dot com IPO.

This does not account for all of the losses in Q1 or Q2, but definitely part of it.

Lending Club could also be spending money on infrastructure needed for planned expansion after IPO. Improving IT, expanding website capacity, hiring more loan review staff, hiring more compliance lawyers, etc. All of these are expenses that need to be incurred prior to sales growth.

It is fairly clear that Lending Club is not profitable anymore. Profitability is no longer a reason to invest in their pending IPO. But there are lots of other reasons people might invest and lots of reasons why short term losses might be beneficial in the long run.

Dan B
Dan B
Aug. 19, 2014 9:22 am
Reply to  JJ Hendricks

JJ………………..Of course let us also not forget that the IPO hasn’t actually happened. Nor do we know whether it’ll even be happening this quarter, next quarter or who knows when. So why would it be logical to presume that IPO related expenses are necessarily in the first 2 quarters that have passed? Given the fact that the IPO hasn’t even been announced yet, would it not make more sense to assume that the lion’s share of expenses be stated in the current quarter’s figures, in other words, the quarter closer to the eventual IPO ?

JJ Hendricks
JJ Hendricks
Aug. 19, 2014 9:48 am
Reply to  Dan B

Yep, the IPO has not happened. In accounting expenses are recorded when they happen. Going public is not a 90 day process, it takes a long time to file with SEC, go on investor road show, make sure your business processes are ready, etc.

One small but concrete example of this we can see as users is Lending Club no longer providing regular updates to their historic download files. This change happened in Q1. There were some legal costs involved with a lawyer telling them to make this change and some IT costs to make it all happen.

Most of the costs are not things users can see.

I am definitely not justifying their losses or saying Lending Club is a great investment. I’m just giving valid reasons why GA expenses could be higher in the last few quarters.

Dan B
Dan B
Aug. 19, 2014 10:55 am
Reply to  JJ Hendricks

Oh, I agree that it’s not a 90 day process, but it’s also, normally, not some 500 day process either………………& right now the process seems to be inching its way to that latter figure. Of course I don’t know when they made the official decision to do this or when they filed the first piece of paper, but they certainly have been hinting of a 2014 IPO for way longer than a year now. I’m just wondering when in 2014 this is supposed to happen, given the normal elapsed time between announcement & the big day.

In addition I’m not assuming that IPO expenses are going to be confined to the past 2 quarters until we get some announcement as to the date. Though those numbers appear bad, we won’t know how bad until we see the current quarter & perhaps even the next one & get a better feel as to where the IPO expenses were really applied.

But I agree with your main points. And I’m not suggesting that LC will be a good or bad IPO investment either, because it’s impossible for anyone to begin to make any assessment without details & we have yet to be provided any details.