Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Lending Club is Junk

It is now official, Lending Club (NYSE: LC) the vaunted peer-to-peer (P2P) platform that was supposed to revolutionize finance is now junk. Lending Club’s stock was trading at $3.81 a share on December 13, 2017.

To make matters worse, Lending Club lost money and earned no income during 3rd Quarter 2017. Data provided by our friends at ycharts shows just how pathetic Lending Club has become. The highlights of the dismal earnings report include:

  • A loss of -$94.10 million reported on September 30, 2017. This was better than in September 2016 when Lending Club reported a loss of -$109.12 million.


  • A profit margin of -4.24% on 30 September 2017.

  • A free cash flow of -$142.21 million on 30 September 2017.


  • Lending Club shareholders were punished with a negative return on equity of -9.61%.


These figures call the whole idea of P2P lending and the thesis that a P2P revolution is about to disrupt and transform finance and financial technology into question. Investors need to pay attention to the mess at Lending Club because many other companies are trying to duplicate its business model.

Those experimenting with the P2P range from cryptocurrency and blockchain lenders like Nebeus to financial companies such as American Express (NYSE: AXP) and PayPal (NASDAQ: PYPL). Skeptics will wonder if these organizations are setting themselves up for the kind of losses seen at Lending Club.

Is Lending Club Losing Money?

Lending Club is losing money from its operations. The company reported a cash from operations figure of -$152.54 million on 30 September 2017. That was in contrast to $13.64 million in cash from operations a year earlier.

Lending Club has gotten to the point where it is losing money by just staying in its business. What might be worse is that Lending Club is losing money from financing, it reported a cash from financing figure of $-461.20 on September 30, 2017. That indicates the company might be losing money from its lending operations, which are its only business.

Lending Club did make $477.35 million in cash from investing on September 30, 2017. That might indicate that some of the company’s loan portfolio is generating some money.

What’s worse is that Lending Club has very little value right now, it reported cash and short-term investments of $384.88 million on September 30, 2017. The company also claimed $4.753 billion in assets on the same day but it also reported $3.760 billion in liabilities and $3.516 billion in debts.

Worst of all Lending Club had a market cap of just $1.581 billion and an enterprise value of $4.884 billion on December 13, 2017. The company simply has very little cash and no value; which indicates it is a failure as a financial company.

So What Went Wrong at Lending Club?

A better question to ask might be what did not go wrong at Lending Club? The greatest problem at the company is many other companies duplicated its products.

Square (NYSE: SQ), Amex, PayPal, and even Goldman Sachs (NYSE: GS) all jumped into the small lending sphere. So did aggressive privately-held competitors like Prosper and Lendio. Then Lending Club missed out on the blockchain revolution.

Finally, investors simply did not like its products or like the idea of becoming small lenders. The vast volume of money needed to finance a successful P2P market never appeared. Main Street never bought into the idea of Lending Club, which doomed it.

Is it the end of Lending Club?

Many people will wonder if this will lead to the end of Lending Club. The answer to that question is yes unless the company can find a savior of some sort.

The only hope for Lending Club right now would be for a private equity company or a major finance provider to buy it. The only way Lending Club would be to survive would be for somebody to pump some major money into and to revamp and rebrand its products.

One potential solution would to harness artificial intelligence (AI) and create something like Goldman Sachs’ Marcus which issues credit repair loans. Another would be to rebrand Lending Club as a general lender and tap the private-equity markets for funds. A final solution would be to become a blockchain based lender, create a cryptocurrency, and start issuing loans worldwide like Nebeus plans to do.

Unless Lending Club makes some radical changes and soon, it is doomed. Investors need to stay far, far away from Lending Club’s stock because it is nothing but junk.