Author Topic: LC IPO: Numbers don't add up  (Read 2358 times)

stick109

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LC IPO: Numbers don't add up
« on: December 05, 2014, 09:24:40 PM »
According to https://www.lendingclub.com/info/statistics.action, total loans issued on 9/30/2014 is ~$6B. Adjusting for the loans that are paid in full, charged off, etc., it is safe to assume there are no more than $5B in outstanding loans.

Now, LC charges 1% of the investor's cash flow (excluding loans paid off prematurely). What is the cash flow? Best case scenario is that most of the loans are 36 months, which gives us ~45% of currently outstanding loans as yearly cash flow. Any adjustment for 60-months loans will decrease this number.

Therefore, LC's yearly net revenue has an upper bound of 0.01 * 0.45 * $5B = $22.5M. However, the IPO prospectus reads "For the nine months ended September 30, 2013 and 2014, our total net revenue was $64.5 million and $143.0 million, respectively".

According to my estimate, total net revenue for nine months ended September 30, 2014 cannot exceed 0.75 * $22.5M = $16.875M, which is almost nine times less than declared. What am I missing?

Randawl

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Re: LC IPO: Numbers don't add up
« Reply #1 on: December 05, 2014, 09:59:11 PM »
According to https://www.lendingclub.com/info/statistics.action, total loans issued on 9/30/2014 is ~$6B. Adjusting for the loans that are paid in full, charged off, etc., it is safe to assume there are no more than $5B in outstanding loans.

Now, LC charges 1% of the investor's cash flow (excluding loans paid off prematurely). What is the cash flow? Best case scenario is that most of the loans are 36 months, which gives us ~45% of currently outstanding loans as yearly cash flow. Any adjustment for 60-months loans will decrease this number.

Therefore, LC's yearly net revenue has an upper bound of 0.01 * 0.45 * $5B = $22.5M. However, the IPO prospectus reads "For the nine months ended September 30, 2013 and 2014, our total net revenue was $64.5 million and $143.0 million, respectively".

According to my estimate, total net revenue for nine months ended September 30, 2014 cannot exceed 0.75 * $22.5M = $16.875M, which is almost nine times less than declared. What am I missing?

You are missing their other sources of revenue.  Origination fees, "recovery" fees, and sale of packaged loans to buyers, among others.

hamblingl

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Re: LC IPO: Numbers don't add up
« Reply #2 on: December 05, 2014, 10:53:36 PM »
Yes, you are right. there are other fees.  Not sure what Randawl was trying to accomplished by testing the revenue as reported in the S1 filed by Lending Club.  All of these numbers are verified by auditors, lawyers etc, prior to publishing them.  Especially in a stock registration statement.  There is not enough independent information available to perform this kind of revenue test with any degree of accuracy. 

Fred93

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Re: LC IPO: Numbers don't add up
« Reply #3 on: December 06, 2014, 12:15:07 AM »
Most of the revenue is from origination fees which LC charges to borrowers, which you forgot to count.  These are called "transaction fees" in the prospectus.

You can see the breakdown of revenue from the different fees on page 60 of the latest prospectus.  "consolidated statement of operations data".