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Will Rising Expenses Hurt LendingClub (LC) Q1 Earnings? - Analyst Blog

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LendingClub CorporationLC is slated to announce first-quarter 2015 results on May 5, after the market closes.

Last quarter, LendingClub reported a loss of 6 cents due to a significant rise in operating expenses. This was, however, partially offset by considerable growth in revenues. Further, the earnings came below the Zacks Consensus Estimate of loss of 3 cents.

Will LendingClub manage to attain profitability this earnings season or will it disappoint yet again? Let's see how things have shaped up for this announcement.

Factors Impacting Q1 Results

LendingClub seeks to maximize the use of technology to make borrowing cheaper and easier. However, at the same time, the company needs to constantly maintain and upgrade its online platform, thus, increasing technology-related expenses.

Despite minimal overhead costs involved with brick-and-mortar branches, LendingClub incurs a significant expenditure for selling and marketing its products. Further, origination and servicing expenses should increase in the quarter, triggered by a rise in loan originations. As a result, overall expenses should trend higher in the quarter and could even hurt the company's bottom line.

LendingClub's primary source of revenue is transaction fees on loans that it helps to issue, and subsequently lists online for investors to fund. As we expect loan originations to grow in the quarter, the company's transaction fees should increase as well.

We believe the increased growth rate of transaction fee is largely attributable to the fact that LendingClub'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.

Hence, we believe that in the first quarter too, this upward trend will continue, supporting overall revenue growth. Notably, management expects operating revenues in the range of $74-$76 million during the quarter. Further, adjusted EBITDA is projected within $6-$9 million.

However, LendingClub's quarterly activities were inadequate to impress analysts. Hence, the Zacks Consensus Estimate for the quarter remained unchanged at a loss of 3 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that LendingClub is likely to beat the Zacks Consensus Estimate in the first quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as you can see below.

Zacks ESP: The Earnings ESP for LendingClub is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 3 cents.

Zacks Rank: LendingClub's Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we also need to have a positive ESP to be sure of an earnings beat.

Stocks That Warrant a Look

Here are a few finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

The Earnings ESP for The Allstate Corp. ALL is +5.04% and it has a Zacks Rank #3. The company is slated to report on May 5.

GAIN Capital Holdings, Inc. GCAP has an Earnings ESP of +16.67% and a Zacks Rank #3. It is scheduled to report results on May 5.

FXCM Inc. FXCM has an Earnings ESP of +25.00% and holds a Zacks Rank #3. It is expected to report on May 14.

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LENDINGCLUB CP (LC): Free Stock Analysis Report

ALLSTATE CORP (ALL): Free Stock Analysis Report

GAIN CAP HLDGS (GCAP): Free Stock Analysis Report

FXCM INC-A (FXCM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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