Shares of California-based Internet financial services provider, LendingClub Corporation LC, gained over 4% following the release of third-quarter 2015 results on Oct 29, after the market closed. Adjusted earnings of 1 cent per share (including stock-based compensation expense) outpaced the Zacks Consensus Estimate of a loss of 1 cent. Moreover, the figure compared favorably with a loss of 2 cents per share recorded in the year-ago quarter.
Results also marked the first profitable quarter for the company since its initial public offering in Dec 2014. Net income, on a GAAP basis, came in at $950 million or breakeven per share compared with a loss of $7.4 million or 12 cents per share in the year-ago quarter.
Results benefited from considerable growth in revenues, partly offset by escalating costs. Also, a surge in loan origination acted as a tailwind.
Performance in Detail
Total operating revenue jumped substantially to $115.1 million from $56.5 million recorded in the prior-year quarter. The rise was attributable to a drastic increase in all revenue components. Moreover, the figure surpassed the Zacks Consensus Estimate of $107 million.
Total operating expenses surged 81.1% year over year to $114.1 million led by a rise in all expense components.
Adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) totaled $21.2 million, up significantly from $7.5 million in the prior-year quarter. Further, adjusted EBITDA margin came in at 18.4%, up from 13.3% recorded a year ago.
In the reported quarter, loan originations were $2.2 billion, up 92% from $1.2 billion in the prior-year quarter.
As of Sep 30, 2015, cash and cash equivalents were $579 million, up from $83 million as of Sep 30, 2014. Notably, the company had no outstanding debt as of Sep 30, 2015.
Further, loans grew 61% year over year to $4.1 billion as of Sep 30, 2015. Total stockholders' equity summed $1 billion, considerably up from $142 million as of Sep 30, 2014.
Other Developments
LendingClub opened to investors in Arkansas, Indiana, Iowa, Kansas, Nebraska and Missouri during the third quarter; and subsequent to the quarter-end, opened to investors in South Carolina, Tennessee and Oklahoma. Presently, the company caters to retail investors in 39 states.
LendingClub announced alliance with Alibaba Group Holding Ltd. BABA and Ingram Micro IM, to offer a new line of credit products in a range of $5000−$300,000, to qualified small businesses.
At the same time, the company launched LendingClub Open Integration, which allows online broker-dealers and advisors to offer the company’s products to their respective clients over an integrated interface. The platform supports functions inlcuding investment, reinvestment, money movement, tax reporting, etc.
Outlook
LendingClub raised its guidance for fourth-quarter as well as full-year 2015. The company now expects operating revenues in a range of $128–$130 million for the fourth quarter of 2015, up from its prior outlook for $122–$124 million.
Also, management anticipates adjusted EBITDA within $19–$21 million compared with the prior expectation of $13–$15 million.
For 2015, total revenue is projected in a range of $420–$422 million, up from the previous guidance of $405–$409 million. Moreover, adjusted EBITDA is expected within $64–$66 million, up from the prior projection of $49–$53 million.
Additionally, the company provided an outlook for 2016. It expects operating revenues to grow 70% during the year; while EBITDA margin will likely expand to 18% of revenues.
Our Take
Results reflected a solid quarter for LendingClub. With its potential top-line strength, we expect the company to sustain its recently achieved profitability.
However, since LendingClub seeks to maximize the use of technology to make borrowing cheaper and easier, it needs to constantly maintain and upgrade its online platform. This, in turn, leads to higher technology-related expenses.
Also, the company incurs significant expenditure for selling and marketing its products. As a result, the high-cost scenario is further worsened, hampering the company’s bottom line.
Currently, LendingClub carries a Zacks Rank #3 (Hold).
Among other finance companies, Hercules Technology Growth Capital, Inc. HTGC is scheduled to report results on Nov 5.
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