What happened

Shares of LendingClub Corporation (NYSE:LC) are down about 15% as of 11:45 a.m. EST Thursday as investors bailed on the company's stock during its investor day presentation. Yet another negative revision to its 2017 guidance may be the reason why investors are turning cold on shares of the online loan originator.

So what

After reducing its guidance on its third-quarter conference call, LendingClub reduced its fourth-quarter 2017 guidance again, detailing the changes in Thursday's presentation. The online loan originator now expects net revenue, GAAP net income, and adjusted EBITDA to come in roughly $3 million lower than where it guided in November.

The table below summarizes its changing expectations for the full year 2017.


Guidance in November

Investor Day Update

Net revenue

$576 million to $581 million

$573 million to $578 million

Net income (loss)

($69 million) to ($65 million)

($72 million) to ($68 million)

Adjusted EBITDA

($44.5 million) to ($48.5 million)

($42 million) to ($46 million)

Source: LendingClub, SEC filings. Calculations by author.

In its presentation, LendingClub said the $3 million change reflected a "timing impact" on revenue and EBITDA from holding the residual (riskiest) tranche of a recent securitization. LendingClub recently closed its third self-sponsored securitization, a $330 million deal known as Consumer Loan Underlying Bond (CLUB) Credit Trust 2017-P2.

The LendingClub logo.

Image source: LendingClub.com.

On one hand, securitizations enable LendingClub to originate more loans, and thus generate more origination and servicing fees, plus interest income from the slices of each securitization it retains. On the other hand, they expose LendingClub to more credit risk, since the company has to retain a piece of each securitization on its balance sheet.

In the past, LendingClub operated as a pure originator and servicer, thus passing on all of the risk of loan losses to investors who buy loans off its platform. As LendingClub ventures deeper into securitizations, it becomes more of an ordinary lender than a pure-play originator and loan servicer.

Now what

LendingClub guided for net revenue of $680 million to $705 million in fiscal year 2018, 20% higher than its 2017 guidance at the mid-point.

On a GAAP basis, the company expects to post a net loss of $53 million to $38 million in 2018, due in part to $15 million of operating expense "investments" in technology, and $10 million of expenses for building out its automotive refinancing platform.

LendingClub finds itself between a rock and a hard place. Its robust origination growth in prior periods led to rapid revenue growth, but loan performance soured as higher-risk borrowers defaulted at an unexpectedly high rate, turning some investors away from the platform. Growing quickly, but prudently, is one of the classic challenges of the financial industry. Having rolled out a new and supposedly improved credit model this year, investors will want to see that LendingClub can meet its revenue guidance without sacrificing credit quality.

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