Why LendingClub Isn't Quite Worth Buying: Revenue, But No Earnings Growth

In a report published Thursday, Keefe Bruyette & Woods analyst Julianna Balicka initiated coverage of LendingClub Corp. LC with a Market Perform rating and a price target of $18. Although the company is seeing revenue growth, the analyst mentioned that there was yet to be an earning growth event. Since LendingClub is still in the early stages of its corporate life cycle, the analyst expects the company to make heavy investments in technology, while revenue could be outpaced by the cost of customer acquisition. "As befits a growth company, much of the valuation relies on the terminal value, deemphasizing near-term earnings. If things go well, our valuation may highly likely prove conservative, in our opinion," Balicka said. The analyst believes that the company is at an "interesting inflection point," between growth and profitability, with LendingClub's more traditional and established lending product seeing better efficiencies of scale. "However, continued investment in the technology platform and expansion of new products, which recently have included education and medical finance, continue to keep the efficiency ratio elevated," according to the Keefe Bruyette & Woods report. The analyst believes that visibility into the transition from growth to profitability could prove to a catalyst for entry into the stock. "We consider LendingClub as filling an important role in facilitating consumer credit in the marketplace, and see the adoption of LendingClub notes increasing as an asset class," Balicka added.