Lending Club Stock Curiously ClobberedJanuary 20, 2016 | By: Sean Murray
When Lending Club’s share price was nearing its all-time lows late last year, one might think that company executives would be eager to buy, if for no other reason than to signal long-term confidence. That’s precisely what company CEO Renaud Laplanche did when he bought 60,000 shares on November 30th. And from that date until December 10th, the stock rose from $12.02 to $14.16. That put them within a dollar of their $15 IPO price, a reassuring sign even if they were still down 50% from their all-time high a year earlier.
Here’s what happened next:
- December 14th: The company’s Chief Financial Officer sold 13,950 shares
- December 15th: Board member and former US Treasury Secretary Larry Summers sold 23,421 shares.
- December 16th: The Fed raised interest rates
- December 18th: The company’s Chief Risk Officer sold 75,000 shares. (stock closed at a new all-time low of $11.48)
- January 6th: The company’s Chief Marketing/Operating Officer sold 35,000 shares. (stock closed at a new all-time low of $10.12
- January 11th: The company’s Chief Technology Officer sold 12,500 shares. (stock closed at a new all-time low of $9.24)
- January 12th: The company’s Chief Technology Officer sold 12,500 shares.
- January 13th: The company’s Chief Technology Officer sold 12,500 shares. (stock closed at a new all-time low of $8.86)
- January 14th: The company’s Chief Technology Officer sold 12,500 shares. (stock closed at a new all-time low of $8.02)
While company insiders were selling relatively small blocks of shares and likely doing it to bank just a little bit of their paper wealth, the trades coincided with the company’s plunge to oblivion and perhaps contributed to the drop in the first place. On January 14th, the date of the last insider sale, trading volume spiked to nearly 5x the daily average and the share price hit a record intraday low of $7.76.
Lending Club finished at $7.34 on January 19th, a new all-time record low, with dips as low as $7.05 intraday. That means the stock has dropped nearly 40% since the CEO bought shares less than two months ago. By comparison, the S&P 500 is down 9.5% over that time period.
The share price death spiral has arguably made it easier to spread fear. In the Lending Club subforum on the LendAcademy website for example, a user claiming to manage a hedge fund urged members who use Lending Club’s marketplace to sell everything now and prepare for an armageddon of loan defaults. That thread was suspiciously created around the market open of January 14th, the date with the most trading volume since the IPO.
Meanwhile investors in Lending Club’s notes have remain largely unperturbed. And why wouldn’t they? They’re still enjoying very attractive returns and despite all the doom and gloom, everything is pretty much business as usual.
In a note to shareholders, Compass Point Research and Trading, LLC set a price target of $12 for Lending Club back in December on the risk of the Madden v. Midland case, Congressional investigations into terrorism finance, and the California Department of Business Oversight inquiry into marketplace lenders. While all are perhaps concerning, none seem to present an immediate threat. The most likely reason for the run on Lending Club is that general market fear is stoking reminders of the 2008 crash in which anything related to lending was toxic. As of Tuesday’s close, OnDeck, a business lender often compared to Lending Club, was down 61% from their IPO price. Lending Tree, an online consumer lending portal was down 51% from its 52 week high.
Meanwhile, Lending Club posted positive results in the 3rd quarter. Compared to the same period last year, revenue more than doubled, adjusted EBITDA tripled, and loan originations doubled. They also posted a profit. Overall, these results should not have caused the stock to drop by 50% over the next few months.
As a marketplace, Lending Club does not keep the loans it makes on its balance sheet. That’s something a lot of investors might be overlooking. They may have been clobbered these last few months but the fears might be somewhat unfounded. ..Last modified: January 20, 2016
Sean Murray is the founder of deBanked, an 11-year veteran of the merchant cash advance industry, a casual Lending Club and Prosper note investor, the co-founder of Daily Funder, an alternative lending speaker, consultant, writer, and enthusiast. Connect with me on LinkedIn or follow me on twitter.