By Peter Rudegair
The lending club is getting awfully crowded.
On Tuesday, LendingClub Corp. posted earnings above
expectations, reporting a surge in new loans, even as it cited
growing congestion in the industry.
Like OnDeck Capital, another online lender that reported
earnings this week, LendingClub said it was spending large sums to
advertise to new customers and stand out in an increasingly packed
marketplace.
Neither company recorded a profit--LendingClub posted a loss of
$6.4 million in the first quarter while OnDeck said it lost $5.3
million--but the rapid loan growth the lenders reported illustrates
why others are rushing to the sector.
On Monday, Goldman Sachs Group Inc. became the latest company to
join the party. The investment bank said it had hired a former
executive at Discover Financial Services to lead a new project that
will use technology to lend over the Internet to consumers and
small businesses.
The Wall Street powerhouse's push into retail lending will
likely only intensify the competition for borrowers among companies
that are using data-driven algorithms and other technology to
facilitate loans.
Doug Lebda, chief executive of LendingTree Inc., which connects
borrowers with multiple lenders online, said on an earnings call
last week that "what we hear from our personal loan lenders is that
they have seven to 10 times more money to lend than they can
actually lend."
Mr. Lebda added that "lenders are literally begging to get on
our network across all products."
At San Francisco-based LendingClub, which mostly offers
unsecured personal loans to consumers, first-quarter lending more
than doubled from the same period a year ago to $1.64 billion,
while sales-and-marketing expenses rose 69% to $34.9 million.
The first-quarter results led Lending Club to increase its
outlook for 2015 revenues by around 4.1%.
On a Tuesday conference call with analysts, LendingClub CEO
Renaud Laplanche said the company has a stronger brand and a
"broader, deeper investor base" than other marketplace lenders,
which provides an advantage in terms of both credibility and
funding.
Additionally, as demonstrated by a recently announced agreement
with Citigroup Inc. to provide $150 million in loans to low- and
moderate-income consumers, there is an "increased desire by the
[traditional banking industry] to partner rather than compete with
us," Mr. Laplanche said.
At New York City-based OnDeck, which specializes in
small-business lending, new loans rose 83% to $416 million in the
first quarter while sales-and-marketing spending nearly doubled to
$12.7 million.
Part of that marketing spending came in the form of a new
national sponsorship of Minor League Baseball, whose patrons are
22% more likely than the national average to be small-business
owners, OnDeck executives said on Monday.
Executives at both OnDeck and LendingClub told analysts on their
respective earnings conference calls that for the time being they
can handle the competitive pressure.
"What we believe is that this is a game of scale and that there
are serious competitive advantages that go to the scale player,"
said OnDeck Chief Executive Noah Breslow. "We continue to enjoy
that kind of scale advantage in the market and are very confident
in our ability to maintain that over the next couple of years."
Investors appeared to like LendingClub's results more than
OnDeck's. While shares in LendingClub were up 3.5% to $18.19 in
after-hours trading following the company's results, OnDeck shares
closed 15.5% lower at $16.91.
Traditional banks and financial service companies are also
expanding into the sector. Discover Chief Operating Officer Roger
Hochschild said at a conference on Tuesday that this year it will
move to offer its personal loans unsolicited, rather than on an
invitation-only basis.
"While [marketplace lenders'] business models are well suited to
a benign-credit and low-funding-cost environment, we are very
confident in our superior" underwriting and funding, Mr. Hochschild
said.
Maria Armental contributed to this article.
Write to Maria Armental at maria.armental@wsj.com
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