LendingClub Vs. OnDeck: What Are Analysts Saying?

In a report published Tuesday, Compass Point analysts maintained a Sell rating on both LendingClub Corp LC and On Deck Capital Inc ONDK. Both the companies are scheduled to report their 1Q15 results next week.

In the report Compass Point noted, "While we are cautious on both stocks over the next 12 months primarily due to intensifying competition, regulatory risk, credit risk, and rich valuations, we expect both companies have a chance to beat consensus revenue estimates this quarter as the Street is generally in-line with managements' guidance ranges, which we view as relatively conservative."

The analysts enumerated the top five "areas of focus" for these companies:

For LendingClub, the focus areas are:

1. 1Q15 Revenue - The analysts estimate revenue of $77M, $1M ahead of consensus. They forecast $1.54B of originations, representing 95 percent y/y and 9 percent q/q growth.
2. 1Q15 Adjusted EBITDA/EPS - The adjusted EBITDA estimate of $9M reflects a 12.0 percent margin. "The key expense item to monitor is sales and marketing, which we project will increase to $29.7M, or 38.5% of revenue, from $20.6M (53.2%) in 1Q14." The adjusted EPS estimate of $0.02 is $0.01 above the consensus.
3. 2015 Guidance - Currently, guidance for 2015 is at revenue of $370-$380M and adjusted EBITDA of $33-$42M, versus the Compass Point estimates of $407M and $42M, respectively.
4. Competition Commentary - A number of competitors have recently entered the market. "Specifically, we are focused on trends in customer acquisition costs and sales and marketing expenses," the analysts wrote.
5. Sector Expansion Commentary - The company has indicated its plans to "get more aggressive in small business." The analysts mentioned that they were also "tracking any progress" in auto loans and real estate.

For On Deck Capital, the focus areas are:

1. 1Q15 Revenue - The analysts estimate revenue of $54M, $1M below consensus. They forecast $421M of originations, representing 85 percent y/y and 14 percent q/q growth.
2. 1Q15 Adjusted EBITDA/EPS - The adjusted EBITDA and adjusted EPS estimates are at ($2M) and ($0.05), respectively.
3. 2015 Guidance - Currently, guidance for 2015 is at revenue of $254-$258M and adjusted EBITDA of ($2M)-($4M), versus the Compass Point estimates of $266M and ($2.5M), respectively.
4. Competition Commentary - "We are tracking competition commentary in the small business vertical as barriers to entry and brand loyalty appear relatively modest, in our view. Increasing competition manifests itself in lower borrower interest rates and higher marketing expenses," the report mentioned.
5. Geographic Expansion Commentary - "We are awaiting additional commentary around ONDK's entrance into Australia, progress in Canada, and any other expansion opportunities," the analysts added.

The price target for LendingClub is at $16, while that for On Deck Capital is at $14.