💵 Lending Club: The Radius Redemption?
💵 Lending Club: The Radius Redemption?
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💵 Lending Club: The Radius Redemption?
Lending Club (LC) is back in the spotlight, making waves in the market as it dives a step further into banking. The company's Q4 earnings and acquisition of digital bank Radius sent shares soaring.
Background
Founded in 2006, San Francisco, CA-based Lending Club is a peer-to-peer lender that connects retail investors to high-yield loans from borrowers. Investors get diversified pools of parts of loans and borrowers get personal loans at lower rates than credit cards. The FinTech company had the biggest tech IPO of 2014, with an $8.6B valuation.
All hell broke loose in 2016 when founder Renaud Laplanche and executives were caught doctoring loan documents to push higher loan volumes through their platform. The markets were unforgiving. LC's stock plunged to $5 from an all-time high of $139. Laplanche was replaced with current CEO Scott Sanborn, who put LC on the road to redemption.
Sanborn had two clear priorities:
target prime borrowers while seeking out institutional investors such as banks and insurance companies that don’t bolt from the platform on a whim unlike a retail investor; and,
put more innovative loan products out on different platforms and attract more types of investors.
On both counts, Sanborn delivered. LC increased loan originations from $9B in 2017 to $12.3B in 2019, becoming the largest originator of personal loans in the U.S. So how did the company fare during the pandemic?Â
What Happened?
The company did suffer along with the rest of the financial services sector with reduced loan originations. Still, loans made out pre-pandemic continued to hold up well. Sanborn cut costs at the same time. All those efforts are now bearing fruit.
Key Q4 numbers:Â
Loan originations were up 56% from Q3 2020
Net Revenue was $75.9M, up 2% from Q3 2020
GAAP Net Loss was $26.7M, down from $34.3M Q3 2020
LC acquired Boston-based digital-only Radius Bank for $185M last month. The deal is set to lower funding costs, diversify product offerings and produce $40M in annual cost synergies. Having an in-house bank will help LC hold more loans on its balance sheet against its deposits, giving the company extra economic benefits.
Along came Cathy Wood. Her ARK FinTech Innovation ETF doubled up on an initial 228.5K share purchase and added a further 86.6K LC shares. All of these developments had one palpable outcome: within a week, LC added $600M to its market-cap which today stands at $1.86B. Although that’s a far cry from the halcyon days of its IPO, LC is now far fitter than it’s ever been, with Radius adding a lot more muscle and heft.Â
As a hybrid bank-marketplace, the LC-Radius combine is now all set to be a lot more than just a lender; it can now market banking products to its massive base of borrowers. For now, investors are cheering on as the company gait becomes more sure-footed, having faltered pretty badly and suffering a near-death experience just five years back.
Market reaction:Â LC closed the day at $19.91, up 11.1%; the stock is up 0.45% in pre-market trading.
Company Snapshot 📈
LC $19.91 +1.99Â (11.10%)
Analyst Ratings (6 Analysts) BUY 17%Â HOLD 83%Â SELL 0%
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Later Today 🕒
Before Market Open:Â Dollar General Corp Earnings (DG)
After Market Close:Â FedEx Corp (FDX)
After Market Close:Â Nike Inc (NKE)
6:00 PM IST: Initial jobless claims
Fun Fact of The Day 🌞
The heads on Easter Island have bodies.
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