San Francisco-based LendingClub Corp. (LC) made a grand entry on NYSE through IPO Thursday. The online loan facilitator debuted trading at $24.75 per share, a whopping 65% premium to its $15 a share pricing announced on Dec 10. The shares closed the first day at $23.43, reflecting an increase of 56.2%.
Hence, LendingClub raised $870 million in the IPO, where 58 million shares of common stock were offered. The proceeds from the sale of shares will be utilized as working capital, expenditures and debt repayment. Further, the company could use the funds to pursue its inorganic growth strategies.
Morgan Stanley & Co. LLC and Goldman, Sachs & Co., the respective units of Morgan Stanley (MS – Analyst Report) and The Goldman Sachs Group Inc. (GS – Analyst Report), acted as joint lead book-running managers of the offering. Further, Credit Suisse Securities (USA) LLC, a division of Credit Suisse Group AG (CS – Snapshot Report), and Citigroup Global Markets Inc., a unit of Citigroup Inc. (C – Analyst Report), were joint book-running managers.
What's so Unique About LendingClub?
Founded in 2007, LendingClub seeks to maximize the use of technology to make borrowing cheaper and easier. The company matches demand from people who seek to borrow from those who want to fund such loans. Touted as the largest online marketplace lender, the company has facilitated approximately $6.2 billion in loan originations as of Sep 30, 2014.
The main source of revenue for LendingClub is the transaction and servicing fees on loans that it helps to issue and subsequently lists online for investors to fund. The company's primary products are three-and five-year unsecured consumer loans with an average interest rate of 14%.
This rate is significantly lower than those on traditional credit cards, thereby helping LendingClub to increase revenues at a faster pace. The company's revenues have grown from $11.0 million in 2011 to $85.8 million in 2013. This increasing trend has continued in the first nine months of 2014 as well, with the company reporting sales of $133.8 million.
Also, as LendingClub is exclusively an online company, many other overhead expenses related to brick-and-mortar branches can be done away with. This is an added advantage for the company and also one of the reasons why it charges lower rate of interest on loans.
Nevertheless, LendingClub has its share of issues/headwinds. The strength of the company's business model was not been tested on a larger scale during the economic downturn. Since the company also provides loans to those with low credit scores, those loans could turn bad during a financial crisis, wrecking unfortunate investors.
Despite these shortcomings, LendingClub will likely give a tough competition to traditional banks. With many of the Americans using online banking, the company will have strong growth prospects. Further, lower interest rates as compared with traditional banks will attract more borrowers.
All said and done, it has to be seen how long this rally in LendingClub's share price can continue.
