LendingClub (LC) Q4 Earnings Miss Estimates, Costs Increase

LendingClub Corporation LC reported fourth-quarter 2017 adjusted earnings per share of 1 cent, which lagged the Zacks Consensus Estimate of 2 cents. However, the figure compares favorably with the prior-year quarter’s loss of 2 cents.

The results largely benefited from top-line growth and rise in loan originations. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) showed impressive growth. However, a decline in loan balance and escalating expenses were the major headwinds.

Results for the reported quarter included several significant items. Including these, consolidated net loss was $92.1 million compared with net loss of $32.3 million in the year-ago quarter.

For 2017, the company reported nil adjusted earnings per share, lagging the Zacks Consensus Estimate of 1 cent but compares favorably with the prior-year’s loss of 10 cents. Consolidated net loss was $154 million compared with $146 million in 2016.

Revenues & Costs Rise

Total net revenues increased 19.9% year over year to $156.5 million. The rise was primarily due to higher volume of loan originations. However, the figure marginally missed the Zacks Consensus Estimate of $157.2 million.

For 2017, net revenues of $574.5 million lagged the Zacks Consensus Estimate of $575.3 million. The figure jumped 14.7% year over year.

Total operating expenses came in at $247.8 million, reflecting a considerable rise of 52% from the prior-year quarter. The increase was primarily due to a class action litigation settlement of $77 million.

Adjusted EBITDA totaled $19 million against adjusted loss before interest, taxes, depreciation, and amortization of $0.9 million in the prior-year quarter.

In the reported quarter, loan originations were $2.4 billion, up 22.7% from the year-ago quarter.

As of Dec 31, 2017, cash and cash equivalents were $402 million, down 22% from the prior quarter. Loans were down 14% sequentially to $2.9 billion. Total stockholders' equity was $928 million, down 5% from the Dec 31, 2016 level.

Guidance

Concurrent with the results, management provided guidance for first-quarter 2018 and full-year 2018.

First-quarter 2018

  • Total net revenues in the range of $145-$155 million
  • Adjusted EBITDA in the range of $5-$10 million
  • Stock-based compensation of nearly $19 million
  • Depreciation and amortization and other net adjustments of roughly $11 million
  • Net loss in the range of $25-$20 million

 

Full-Year 2018

  • Total net revenues in the range of $680-$705 million
  • Adjusted EBITDA in the range of $75-$90 million
  • Stock-based compensation of nearly $77 million
  • Depreciation and amortization and other net adjustments of roughly $51 million
  • Net loss in the range of $53-$38 million

 

Other Developments

LendingClub announced that it has reached a preliminary settlement of $125 million for the class action lawsuits filed in federal and California state courts arising from legacy issues disclosed by the company in 2016.

Per the terms, LendingClub’s insurance will be covering $47.75 million. Further, the remaining $77.25 million were reflected in fourth-quarter net loss and will be paid from liquid assets of nearly $650 million held as of Dec 31, 2017.

Our Viewpoint

LendingClub’s revenue growth is commendable on the back of strong loans originations. Also, rising adjusted EBITDA is impressive. However, declining loan balance is a headwind. Also, its exposure to numerous legal hassles will keep expenses elevated in the near term.

LendingClub Corporation Price, Consensus and EPS Surprise

LendingClub carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Stocks in the Same Space

American Express Company AXP reported adjusted earnings per share (EPS) of $1.58, beating the Zacks Consensus Estimate by 2.6%. Earnings witnessed a sharp 74% year-over-year improvement. The company witnessed strong loan growth and credit metrics, plus lower operating costs.

Moody's Corporation MCO reported fourth-quarter 2017 adjusted earnings of $1.51 per share, which handily surpassed the Zacks Consensus Estimate of $1.45. Also, the bottom line improved 20% from the year-ago quarter. Results were attributable to impressive revenue growth, reflecting strong issuance in the quarter.

CIT Group’s CIT fourth-quarter 2017 adjusted earnings from continuing operations of 99 cents per share surpassed the Zacks Consensus Estimate of 82 cents. Also, the figure compared favorably with the prior-year quarter’s figure of 62 cents. Results benefited from lower expenses, higher non-interest income and a decline in provision for credit losses.

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