The artificial intelligence loan platform Reached (NASDAQ: UPST) disappointed investors with third quarter results of $ 0.30 in diluted earnings per share (EPS) on total revenue of $ 228 million from over $ 3.1 billion in loan origination.
The results weren’t too bad, as both EPS and revenue exceeded analysts’ estimates. However, management’s forecast implied earnings would slow in the fourth quarter, and with Upstart trading nearly 450 times earnings ahead of the third quarter report, there wasn’t much room for missteps.
The disappointing quarter should however be very beneficial for one of Upstart’s competitors, Loan Club (NYSE: LC), a digital market bank also offering installment loans. Here’s why.
Similar results with a lower valuation
LendingClub and Upstart have different business models. Upstart seeks to replace Just IsaacFICO credit scoring company and sell its white label loan underwriting technology for banks, although currently many of its loans still originate from the Upstart platform. LendingClub issues loans for its banking partners and asset managers, then keeps 15-25% of loan origination on its own balance sheet and collects recurring interest income on these loans.
But the two companies still compete for the most unsecured personal loans and use technology, data and machine learning to more effectively secure these loans and better assess a borrower’s creditworthiness. So they are competitors in many ways.
It has been a year of phenomenal turnaround for LendingClub. In March, management was targeting annual revenue of nearly $ 487 million on total fixtures of nearly $ 6.3 billion. The company expected a full-year loss of between $ 175 million and $ 200 million. But after finalizing the branchless Radius Bank acquisition and accompanying banking charter, LendingClub was able to accelerate its new business model faster than anyone imagined. The company has now had two stellar consecutive quarters, achieving profitability well ahead of schedule and closing the quarterly earnings gap with Upstart. Here’s a look at the third quarter results for the two companies.
|Reached||$ 0.30||$ 228 million||$ 3.1 billion|
|Loan Club||$ 0.26||$ 246 million||$ 3.1 billion|
LendingClub has now significantly raised its guidance, and the projected results for the fourth quarter and full year have narrowed rapidly between the two companies (I used the upper portion of management’s estimates for both).
|Society||Q4 net income||Q4 revenue||Net income 2021||2021 turnover|
|Reached||$ 20 million||$ 265 million||$ 96.5 million||$ 809 million|
|Loan Club||$ 25 million||$ 250 million||$ 14 million||$ 806 million|
The estimates of fourth quarter performance and annual revenue are very similar for the two companies. Keep in mind that LendingClub reported a loss of around $ 47 million in the first quarter of the year, as it dealt with some one-time expenses related to the Radius acquisition, while it was still in the process of processing. ‘accelerate its new model.
While the two companies show similar results (and LendingClub narrows the gap in terms of revenue and profitability), Upstart has a market cap of around $ 20 billion, even after a massive sell-off after its third quarter results. . LendingClub’s market capitalization is approximately $ 4.2 billion.
Other things that were seen this quarter: The two companies generated about $ 3.1 billion in loan volume (a major revenue driver for both companies), and LendingClub only had about $ 51 million. dollars in marketing expenses while Upstart spent over $ 93 million. Additionally, LendingClub CEO Scott Sanborn noted during the company’s third quarter earnings call that more than 80% of loans issued by the company are automated. The automated loan percentage at Upstart fell to 67% in the third quarter and has never exceeded 71% in previous quarters.
Good news for LendingClub
What I’m seeing here are two fintech companies generating similar revenue and profitability, but LendingClub is doing it more efficiently and has grown faster over the past few quarters. Yes, LendingClub and Upstart have different models, and it is clear that the market currently has much higher expectations for Upstart than for LendingClub.
But I also think that the market has taken a step ahead and that the gap between LendingClub and Upstart is not justified. I think the third quarter results and updated guidance for both companies further support this thesis, and they bode well for LendingClub.
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