|Probably a good call. Last week's reaction to the revised guidance was a bit excessive. Hopefully, they have their house in order now.|
LendingClub (LC) Stock Tanks 17.4% on Lower Q4 Guidance
December 11, 2017, 08:15:00 AM EDT By Zacks Equity Research, Zacks.com
Shares of LendingClub Corporation LC plunged 17.4% since its Investors Day conference last week. Investors turned bearish as the company lowered its fourth-quarter 2017 outlook within a month.
What's the New Q4 Guidance & Why was it Lowered?
LendingClub provided the details related to its new outlook in the Investors Day presentation. The company now expects fourth-quarter 2017 revenues, GAAP net income and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be nearly $3 million lower than what it guided in November.
LendingClub now projects net revenues to be in the range of $155-$160 million, down from previous outlook of $158-$163 million. Additionally, adjusted EBITDA and GAAP net loss are expected to be in the range of $16-$20 million (lower from $19-$23 million) and $10-$6 million (wider than prior loss estimate of $7-$3 million), respectively.
Further, LendingClub's 2017 revenues are projected to be approximately in the $573-$578 million range and adjusted EBITDA between $42 million and $46 million. Notably, the company is expected to report a net loss of $72-$68 on GAAP basis.
The main reason for reduced fourth-quarter outlook is related to the "timing impact" of holding residual from the company's recent securitization deal. While securitizations help LendingClub in originating more loans and thus earn additional origination and servicing fees, they expose the company to more risk as it has to retain part of securitization deals on the balance sheet.
LendingClub's 2018 guidance includes $25 million operating expenses related to investments in automotive refinancing platform and technology upgrades while not taking into consideration any legal costs.
Further, LendingClub's 2018 revenues are projected to be approximately in the $680-705 million range (up 18-22% year over year). This shows that the company is on track for its long-term revenue target of 15-20% rise year over year.
Adjusted EBITDA is anticipated between $42 million and $46 million (rising 87.5% at the mid-point). Notably, LendingClub is expected to report a net loss of $53-$38 on GAAP basis, reflecting a year-over-year improvement.
Road Ahead Expected to be Bumpy
LendingClub grew rapidly in the last few years. But the company's asset quality deteriorated as high-risk borrowers defaulted. This, in turn, led to some of the investors moving away from the company.
Nonetheless, LendingClub tightened its underwriting methods earlier this year. Therefore, the company was now expected to meet its financial targets. So, this reduced outlook made the investors apprehensive.
LendingClub's shares have plunged 33.1% so far this year against industry 's growth of 17.8%.
Currently, LendingClub carries a Zacks Rank #3 (Hold).