Can LendingClub Survive Increased Competition?

• LendingClub Corp LC shares have been declining steadily since January and are down 44 percent year-to-date.
• Morgan Stanley’s Smittipon Srethapramote maintained an Overweight rating on the company.
• New product announcements and continued execution are expected to act as catalysts, Srethapramote noted.

Meeting with LendingClub’s management revealed that the company’s supply demand dynamics remain balanced, despite concerns over the impact of increased competition. Terming the concerns related to Madden v. Midland as overblown, the company’s management said it had still developed a contingency plan.

LendingClub’s scale leadership position ensures that its acquisition costs remain low at around 2 percent of originations. Analyst Smittipon Srethapramote said that the company aims to prioritize direct and targeted acquisitions that are cost-effective while de-emphasizing the “aggregator channels.”

The company is unlikely to enter the financial management segment in view of it being a crowded space and the possible viewing of its financial management app as “potentially biased,” Srethapramote stated.

LendingClub’s “almost exclusive” relationship with small banks remains a strength. The Morgan Stanley report added that LendingClub is evaluating an entry into newer areas, like purchase financing, revolving lines of credit, student loans, auto financing and mortgage.

The company’s revenue yield is expected to continue rising in view of its policy of providing preferential servicing rates to early investors and charging collection fees from investors, Srethapramote mentioned.