Simplification Serves LendingClub Well As It Pushes To Get Back To Profitability

The last few years have been an exciting ride for LendingClub watchers.  The firm went public in 2014 and had just managed its first quarter of profitability in early 2016 when scandal rocked the business and it found itself without its found CEO, facing a lot of investor doubt and being investigated by the DoJ.   The climb back from that has been long and at times arduous, but has been making progress throughout 2019.  Yesterday, when earnings dropped, LendingClub announced that it had finally returned to adjusted net income profitability, and even CEO Scott Sanborn noted this as a very important milestone.

“Our strategy is working and we are executing with discipline on our mission to help more borrowers improve their financial health, while growing our market opportunity, generating competitive returns for our platform investors, building our resiliency and compounding our competitive advantages,” he said.

In terms of adjusted earnings, LendingClub reported $0.09 per share, a big beat on the consensus estimate of $0.01 per share and a big pick-up from the $0.15 per share the firm reported a year ago. All in all, adjusted net income came in at $8.0 million, a very big improvement from the roughly $7 million loss reported at this time last year.  The latest result carries forward a trend for 2019 — over the last four quarters, the company has surpassed consensus EPS estimates three times.

Revenue came in at $204.90 million for the quarter ending September 2019, a slight beat on estimates and a pick-up compared to year-ago revenues of $184.65 million. The company has topped consensus revenue estimates two times over the last four quarters.

Loan originations were also up — they increased 16 percent year-on-year to $3.3 billion.  That figure is encouraging, LendingClub’s Anuj Nayar told Karen Webster shortly before the results hit the public wires, particular when compared with other data trends he saw during the quarter. Loan applications are on the rise, he told Webster, with over 50 thousand coming in per day as well as a powerful pick-up in their top tier, highest quality loans.

“There has really been a marked increased in our high grade A and B level loans — they are up about 30 percent,” Nayar noted.  Our focus is on making sure these things are driving the best bottom line growth for us.”

Another favorable trend on display this quarter, Nayar noted, is the amount of repeat business the firm has seen.  While there has been an uptick in first-time applicants, he is also seeing a big increase in the number of customer coming in to LendingClub for their second or third loan.

“I think if you look at the economic environment,” Nayar noted, “you see the Fed is cutting the rate, but the banks aren’t cutting rates on credit cards, so the spread between credit card lending and personal loans has never been bigger.”

That customers are looking for ways to save money simply by opting for the now-obvious, much less expensive of the two options, he noted, has a lot of powerful appeal.

And it is appeal the firm has spent much of the last few years in general, and much of 2019 in specific, getting itself streamlined into shape to capitalize on.  Earlier this year the firm relocated from San Francisco to Utah — a big money saver — and announced it would be moving forward with seeking a bank charter.

That move, according to Nayar and confirmed by CEO Sanborn in his call with analysts after earnings were announced, remains on the table, and LendingClub continues to work toward getting an official bank charter. How exactly they are gong to do that — and when it might happen — remain up in the air.

“We are very, very clear that we are planning a national bank charter. We’re looking at multiple options as to how we are going to achieve that goal.”