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Prosper Reports Q2 2018 Financials

The company increased originations from the previous quarter while their net loss rose slightly.

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Yesterday, Prosper reported their Q2 2018 results. The company facilitated $867 million in loans for the quarter, up 12% from the prior year period. Prosper reported a net loss of approximately 12.6 million. While this is significantly better than the prior year period of $41.4 million, their losses increased slightly from the first quarter ($11.4 million). Total net revenues for Q2 2018 were $31.7 million, up slightly from the prior year period.

Below is a summary of Prosper’s key operating and financial metrics:

With their recent quarter, Prosper crossed the 1 million loan mark and surpassed $13 billion in loans total. David Kimball, Prosper CEO provided his perspective on the company’s progress related to adjusted EBITDA as well as platform changes in a prepared statement included in the press release:

“For the fifth consecutive quarter we successfully balanced growth with generating positive Adjusted EBITDA…Maintaining a balanced marketplace that provides value to both borrowers and investors remains our highest priority. Throughout 2018, Prosper has been raising interest rates and significantly tightening credit in order to ensure that we continue to provide a fair price for borrowers and a solid risk-adjusted return for investors.”

Prosper also highlighted that they have upsized their committed revolving warehouse facility to $200 million to continue to participate alongside their investors. We’ve seen this elsewhere in the marketplace lending space with LendingClub holding more loans on balance sheet for the purposes of selling these loans to investors at a future date. As of June 30, 2018 Prosper had $116.8 million of loans on their balance sheet held for sale.

You can view Prosper’s full 10-Q report on the SEC website.

My Quarterly Marketplace Lending Results – Q1 2018

My latest quarterly investment results show an overall 4.70% return* for the year ending March 31, 2018

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It is that time again when I share my quarterly investment returns. This is something I have been doing for many years now and I know it is one of the most popular features on Lend Academy. I started out investing in marketplace lending many years ago with just Lending Club and Prosper but slowly have added new investments over the years. I share all the details in this post.

Before I get started I do need to provide one caveat with this quarter’s returns. I do not have final numbers for our own Lend Academy P2P fund yet. We are reviewing valuation methodologies and we have several service providers working with us on that possible change. This process is taking quite a bit longer than we expected. I know my quarterly returns are keenly anticipated by many of you and I like to publish them around this time. So rather than wait until the valuation is final I decided to publish my quarterly report now and I will adjust when we get final numbers. In the meantime I have used the December 31 numbers, assuming a flat Q1, to provide a returns estimate.

I have one new addition this quarter, Fundrise, they are a real estate platform that is open to non-accredited investors. While I had invested a very small amount with them several years ago I added to it substantially last year and so I am including it in my returns update now. You can find out more by listening to my podcast with the CEO, Ben Miller, from last year.

Overall Marketplace Lending Return at 4.70%*

After a downward trend that has continued for many years I am wondering when I will reach a bottom. My preliminary return of 4.70% is close to where it was last quarter but still down. I don’t expect my final Lend Academy P2P Fund return to increase this number so I am still stuck in the downward trend of returns.

My six original accounts at Lending Club and Prosper have all been open for at least six years so they are very mature accounts that have experienced several turns of capital as I have kept reinvesting over the years. I separate these out because these were the accounts I had when I first started doing these reports so readers can go back and see how they have trended over time. The returns for the past year are still bad at 2.34% as I continue to pay for poor underwriting performance in 2015 and 2016 at both companies. When you see today that you can get 3% on a 10-year Treasury Note a sub 3% return is just not acceptable for an unsecured consumer loan.

While I continue to reinvest the principal and interest earned in my LendingClub and Prosper accounts in the hope and expectation of a rebound I am committing new capital elsewhere. I like real estate where you can still get mid to high single digit returns with the added security of an asset backing the loan. That is why I have added new money in the last 12 months to companies like Peerstreet, Alphaflow, Money360 and Fundrise. All are detailed here.

Now on to the numbers. Click the table below to see it at full size.

[Read more…]

Prosper Reports Q1 2018 Financials

Prosper narrowed their losses for the quarter and reported significant growth in originations.

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It was only a couple of months ago that we wrote about Prosper’s 2017 results. The major highlights were growing originations to $2.9 billion and the consortium deal that closed at the beginning of the year. Yesterday Prosper shared their Q1 2018 results.

The company continued its growth in originations which totaled $744 million in Q1 2018. Remember, as discussed last week in LendingClub’s earnings that Q1 is typically a lighter quarter for originations.

Prosper’s originations were up 27% from the prior year period. For comparison purposes, LendingClub increased originations 18% over the same period although it’s worth mentioning that LendingClub originated about three times as many loans in the first quarter.

Prosper also made progress in improving their financials, producing a net loss of $11.4 million compared to a net loss of $24 million in Q1 2017. The company produced a net loss of 22.7 million in Q4 2017. Total net revenue was approximately flat year over year coming in at $30.5 million in Q1 2018. Prosper highlighted in their press release that this includes the non-cash impact related to warrants to purchase preferred stock. Excluding these warrants, Prosper reported that core revenue increased to $45.7 million, up 34% from the prior year period.

Prosper included their fourth and largest securitization as a milestone for the company which closed in the first quarter. It was a $650 million transaction which put the company over the $2 billion mark in securitizations. Prosper also closed their first $100 million revolving warehouse facility to participate in loans originated by the platform.

Below is a table which summarizes their financials for the quarter:

Prosper’s 10-Q is available in its entirety on the SEC’s Edgar website. While there are plenty of details about Prosper’s business there, I’ve taken our a snippet below which discusses Prosper’s investor concentration. There are two takeaways here. One is that Prosper is relying significantly on one whole loan buyer. The second is that the retail channel continues to shrink. Only 7% of loans are funded through the fractional marketplace, down 3% from the prior quarter.

Prosper is dependent on third party funding sources such as banks, assets managers and investment funds to provide the funds to allow WebBank to originate Borrower Loans that the third party funding sources will later purchase. Of all Borrower Loans originated in the quarter ended March 31, 2018, the largest party purchased a total of 45% of those loans. This compares to 33%, 24% and 12% for the three largest parties for the three months ended March 31, 2017.  The party purchasing 24% for the three months ended March 31, 2017 is a member of the Consortium and purchased these loans prior to the closing of the Consortium Agreement on February 27, 2017. Further, a significant portion of our business is dependent on funding through the Whole Loan Channel, for which 93% and 90% of Borrower Loans were originated through the Whole Loan Channel in the three months ended March 31, 2018 and March 31, 2017, respectively.

One piece not explicit in Prosper’s press release is loan performance. One of the other resources I get value out of is Prosper’s monthly performance updates which they post to their blog. The latest post highlights takeaways from March. These are a great way to better understand how loans are performing, how loan grades are shifting and what Prosper is seeing overall from their borrowers without having to dig deep into their 10-Q.

Conclusion

Prosper has made significant progress over the last year. While it is apparent that the consortium has had an effect on their net revenue it also has allowed the business to grow over the same time period. It’s going to be interesting to see whether we continue to see significant origination growth over the coming quarters and how that effects the company’s bottom line.

Chris Larsen: From Marketplace Lending Pioneer to Creating the New Internet of Value

The co-founder and former CEO of Prosper is now trying to solve a massive multi trillion dollar challenge: enabling instant global payments

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Back in 2010 in my first month at Lend Academy one of the first people I reached out to was Chris Larsen, then CEO of Prosper. I was writing a story on some changes at Prosper back then and Chris was gracious enough to respond to this new and unknown blogger. Over the next couple of years I met Chris in person several times and got to know him reasonably well as I continued to cover Prosper and marketplace lending more broadly.

I was very disappointed when in 2012 Chris announced he was stepping down as CEO of Prosper. He was the founding CEO and at the time I wondered what could be more important than helping to drive Prosper forward. But Chris had an itch to start a new company, one that was based on this emerging blockchain technology.

Of course, this move proved to be prescient and his new company, which eventually became known at Ripple, has the potential to completely rewrite the rules of global commerce. In 2013 they introduced the XRP token as the vehicle to help them achieve this goal. XRP (as of this writing) is the third most valuable token with market cap of $32 billion. This is down considerably from its high in January when its market cap reached around $150 billion and briefly made Chris Larsen one of the wealthiest people in the world.

Chris had never spoken at LendIt before given that his time at Prosper was over before we launched our event. But he agreed to speak on our keynote stage last month and it was standing room only for this fintech pioneer. You can watch the video below or go to this link. It has become the most downloaded session out of all the keynote videos. [Read more…]

Prosper Reports Full Year 2017 Results

Prosper originated $2.9 billion in 2017 and now has surpassed $11 billion in total loans.

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Today, Prosper reported their full year results for 2017. Prosper is still a private company, but is regulated by the SEC which requires them to provide quarterly and year end results. Prosper’s full 10-K which includes all of the details about their business is available using EDGAR on the SEC website.

The company originated nearly $2.9 billion in loans, up from approximately $2.2 billion in 2016. From our perspective there were two major milestones for the company in 2017. One was the $5 billion consortium deal announced at the beginning of 2017 which was a commitment from investors to purchase loans over a two year time period. The company also successfully raised their Series G funding in September, 2017. As noted in our piece on the announcement this was a significant down round from their previous fundraise in 2015 but it reflected the reset expectations when it comes to valuations.

While the company had a net loss for the year of $115 million, this was largely due to the consortium of investors as noted in the press release: “Net loss of $115 million included $89 million of non-cash charges related to warrants to purchase preferred stock that were issued to a consortium of investors and a third party in connection with a settlement agreement.”

Adjusted EBITDA was $5 million, up $43 million from the year before and more importantly Prosper was cash flow positive for the year, generating just over $1 million in cash. Other financial metrics are shared below:

Prosper’s accomplishments in 2017 were critical to their success going forward. While there are no longer headlines touting massive growth at Prosper, they still are originating a significant amount of consumer loans and they are doing so profitably. The consortium secured investors for a 2-year period and they now have cash to invest in new projects. It’s going to be interesting to see what innovations come to bear in what seems like an ever increasingly competitive consumer loan market.

LendingClub and Prosper Tax Information for 2018

We share information related to filing your taxes with LendingClub and Prosper for the 2017 tax year.

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[Disclaimer: I am not an accountant nor am I qualified to provide tax advice. You should seek professional advice before taking action on any of the ideas presented here.]

For new investors in LendingClub or Prosper, it’s important to understand the documents you receive come tax time. For existing investors it’s important to be aware of any changes LendingClub and Prosper have made in their documents or the way the information is reported. Over time the documents have evolved, with both companies now providing a tax guide for their investors.

Note that investors who invest through a retirement account do not have to worry about tax reporting. Here at Lend Academy we believe there is a strong case for investing in marketplace lending through a product like an IRA. Here is our 2018 post on that topic if you’re interested in learning more about taxes and marketplace lending.

As you’re looking at the documents provided by LendingClub and Prosper you should understand at a basic level how profits and losses are reported. The interest or income from loan payments is taxed as ordinary income. Losses are either short or long term capital losses. Copied below is how LendingClub summarizes the tax treatment of investing in loans on the platform:

Generally, gains and losses from recoveries, sales or charge-offs related to LendingClub Notes are reported for tax purposes as capital gains or losses, rather than ordinary gains or losses. Generally, LendingClub Notes are considered capital assets because they are owned for the purposes of investment (similar to a stock or a bond). Generally, realized capital losses are first offset against realized capital gains. For individuals, any excess capital losses can be deducted against ordinary income up to $3,000 ($1,500 if married filing separately). Capital losses in excess of this limit may be carried forward to later years to reduce capital gains or ordinary income until the capital losses are fully utilized.

Now that you have some background on the tax treatment, we can move into the details on how profits and losses get reported at LendingClub and Prosper.

Filing Taxes for a LendingClub Account

Note: If you plan to use TurboTax to file your taxes, LendingClub has a step-by-step guide on importing your forms here.

First you’ll want to navigate to “Statements” after logging into your LendingClub account. This can be done by clicking your name in the top right of the landing page once you login. On the next screen you will see a menu bar item titled “Tax Forms”. Clicking on the link will take you to another page which will include a link to your 2017 – 1099 Consolidated Package. Linked below your tax document you’ll find LendingClub’s provided 2017 Tax Form Guide. The guide does a great job of outlining which forms you will receive and where you should report this information when filing your taxes. The below table taken from the tax guide shares which forms you will receive. [Read more…]

My Quarterly Marketplace Lending Results – Q4 2017

My latest quarterly investment results show an overall 5.01% return for the 2017 calendar year

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Time for my regular quarterly returns post, one of the most popular features here on Lend Academy. I have been sharing my detailed quarterly returns with readers since 2011 and I will continue to do so for the foreseeable future. I know investors are most interested in returns, in particular how they have been trending over time. You can go back and look at the breakdown of my investments every quarter for the past six years.

If you do look at my historic returns you will see they have been moving steadily in a downward trajectory since the beginning of 2014 when my trailing twelve month (TTM) return was 12.44%. I look back on those returns wistfully now, when my accounts were firing on all cylinders and in reality we were being overly rewarded for the risk we were taking. Today, the pendulum has swung too far the other way and I think the return is too low for the risk.

Overall Marketplace Lending Return at 5.01%

The long decline in my returns has continued with 2017 by far my worst year since I began investing with LendingClub back in 2009. My overall TTM return  in Q4 2017 was 5.01% compared to 6.64% in Q3 2017 and 8.07% one year ago.

I used to proudly say I had never had a down month in my LendingClub or Prosper investments. Now, I have not just had down months but down quarters as well. And I came perilously close to having a down year in my main LendingClub with my return coming in at 0.01%.

[Read more…]

Two Big Banks Set to Launch Their Own Online Lending Platforms

Traditional banks have moved into the online consumer lending space, making a crowded market more competitive.

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A little over a year ago Goldman Sachs launched their consumer lending platform Marcus as part of a digital strategy to move into the retail banking segment. They have since grown faster than any online lending platform with originations approaching $2 billion. Goldman Sachs now believes revenues from online loans will equal that of trading in the near future.

Seeing this success more traditional banks have started to move into the online consumer lending space. In this article we will focus on two recent entrants: PNC Bank and Barclays.

[Read more…]

My Quarterly Marketplace Lending Results – Q3 2017

My latest quarterly investment results show an overall 6.64% return for the year ending September 30, 2017

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Every quarter I share my marketplace lending investment returns with the world. I started doing this back in 2011 with just my LendingClub and Prosper accounts. Today, I share my returns from 14 different accounts across a variety of investment vehicles and platforms.

If you have been reading these posts in the past year or so you will have noticed a steady decline in my returns, primarily caused by underperformance in my LendingClub accounts. That trend has continued with my latest results with my worst performance ever since I started investing in LendingClub back in 2009.

From the beginning I have focused my investing primarily in the highest risk notes and this is the segment that has been hit hardest by defaults. Earlier this year I adjusted my strategy and started investing across the entire risk spectrum but it is a bit like steering a battleship. Given my many thousands of notes it takes a while for any changes to show up in my portfolio returns.

The only good news on this front is that recent vintages at LendingClub appear to be performing better so I am hopeful I can turn this battleship around in the next quarter or two.

Overall Marketplace Lending Return at 6.64%

My trailing 12 month returns for the year ended September 30, 2017 across all my accounts was 6.64%. This was my first quarter without the Direct Lending Investments (DLI) fund. As I mentioned in my last update I was redeemed from that fund on June 30. This has been my best performing investment of the last four years and it will be very difficult to replace it with investments of similar yield. This will also provide a drag on my returns going forward.

I have used the proceeds from DLI to increase my positions at a couple of platforms and have started deploying into new investments. With this edition I am sharing three platforms where I have made new investments: AlphaFlow, Money360 and Yieldstreet. You can read more information about these and all my other investments below.

Now on to the details. Click the table below to see it at full size.

[Read more…]

Prosper Shares Q3 2017 Results with $821 Million in Originations

Prosper has published their Q3 numbers which show gains in positive cash flow and originations up 164% year over year.

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There has been a shift in focus at the large online lending companies over the last year and a half in the US. Gone are the days of relentless growth and now we see a focus on cash generation and the bottom line. Companies have proved that they can use technology to better serve borrowers, but many investors are wondering if they can do it profitably. Last week we shared third quarter earnings releases from LendingClub and OnDeck and yesterday Prosper released their third quarter results.

Originations grew to $821 million in the quarter, up from $311 million in the same period last year and grew 6% from the previous quarter. The company also increased the fees it collected. Prosper reported a net loss of $26.9 million for the quarter, which was an increase of about $10 million from last year. According to the press release the amount, “included $28.1 million in non-cash charges related to warrants to purchase preferred stock that were issued to a consortium of investors and a third party in connection with a settlement agreement.”

The consortium referenced was announced earlier this year and included loan purchases of up to $5 billion over two years. This is the reason you’ll notice an Adjusted EBITDA of about $7 million for the quarter in the table below. More importantly, you will see net cash flow in Q3 of $9.9 million up from $8.6 million in Q2 and -$4.2 million in the same period last year.

Other highlights for the quarter include a third securitization totaling approximately $500 million of notes. In total Prosper has closed three securitizations this year, totaling $1.5 billion.

David Kimball, CEO of Prosper stated in the press release:

We continued to see growth during the third quarter as people turned to Prosper’s personal loan product to refinance high-interest debt, pay for medical expenses, and finance home improvement projects. As we look to the end of the year and 2018, our ability to consistently generate positive operating cash flow along with the $50 million capital raise in the third quarter will help drive strategic investments in the company’s platform and products.

Conclusion

Clearly the consortium deal is having an effect on Prosper’s financial results, but as discussed previously this deal was critical to ensure the success of Prosper over the long run. Coming off from a significant decrease in originations in the second quarter of 2016, Prosper has steadily increased originations again. The company also closed their Series G round in September albeit at a much lower valuation than the round in April, 2015. Looking towards the future I expect the company will steadily grow the business while at the same time continuing to generate cash. What will be interesting, though, is what new projects they decide to invest in with the influx of cash.

The full 10-Q report for the third quarter is available on Prosper’s website.

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