CEO Departure, No Guidance Creates Uncertainty At LendingClub

LendingClub Corp LC reported better-than-expected 1Q revenues, backed by pricing changes. The company’s performance missed slightly on originations, EBITDA and EBITDA margins. Pacific Crest’s Josh Beck downgraded the rating for the company to Sector Weight, citing credit and funding concerns.

Reduced Visibility

Analyst Josh Beck noted that while LendingClub fared better than its peers on the Originations front, the lack of guidance reduces visibility into the company’s future performance. He added that the $261 sequential decline in funding from non-bank institutional investors and managed accounts was unexpected.

Beck expects a significant change in the company’s funding mix, with the contribution of other institutional investors and managed accounts to decline from nearly 50 percent of the 1Q16 originations to about 33 percent by 4Q16. The contribution of banks and self-managed individuals may rise to 67 percent by 4Q16.

News of the unexpected resignation of CEO has also increased the funding uncertainty. “The reputation and brand hit associated with an unexpected CEO resignation could have a lingering effect on investor demand to buy LendingClub loans, and thus we are cautiously biased on funding availability moving forward,” the analyst commented.

Weak controls could raise doubts over the company’s ability to manage a new CFPB regulation or scrutiny. Beck expects LendingClub’s full-year EBITDA to reach $84.4 million on a 13.6 percent EBITDA margin.