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[NewHorizon]

I parsed two lines from quarterly Consolidated Statements of Operations to see what the main source of income looked like in the 4th quarter. Now I can better predict a burn rate going forward. I came up with:

REVENUE ITEM	Qtr 1	Qtr 2	Qtr 3	Qtr 4	2009
–––––––––––––––––––––––––––––––	–––––––	–––––––	–––––––	–––––––	–––––––
Agency fees (loan origination fees)	0	1,375	67,348	167,122	235,845
Loan servicing fees (lender fees)	181,142	143,737	121,875	109,948	556,702
–––––––––––––––––––––––––––––––	–––––––	–––––––	–––––––	–––––––	–––––––
Total from borrowers and lenders	181,142	145,112	189,223	277,070	792,547

It is interesting to note, loan origination fees are a 'one shot' while lender fees are taken pro-rata across 36 months. Thus, lenders provided the largess of revenue in 2009. Notice lender contributions are shrinking because 10s of millions of loans are maturing and only 1s of millions of loans are replacing the basis for the 1% coming from lenders (lenders are charged 1% APR of borrower's outstanding principal).

ETA: Qtr 1 extrapolated

So $60K a month total operating income in 2009 -- what a pittance (and, as you note, that number is shrinking because Prosper isn't coming close to replacing maturing (or charged-off) loans with new ones). 

Does the 10-K state how much Prosper pays WebBank for originating the loans?

I didn't find the number.  But WebBank charges the origination fees, takes a part for themselves, and THEN the rest go to Prosper, as I understand the 10K:

The origination fees are charged by WebBank, and we receive amounts equal to a percentage of the total origination fees as compensation for loan origination activities.

So - and this may be a dumb question - but wouldn't that mean that the revenue figures above already have WebBank's fees removed?

[Investar]

 ... So - and this may be a dumb question - but wouldn't that mean that the revenue figures above already have WebBank's fees removed?

Not a dumb question. I asked it (of) myself and am operating on the same assumption -- the number is 'net'. Still, it would be nice to know what WebBank's cut is.

Edit to change my 'tune' based on new information (scroll down 4). The table DOES NOT have WebBank's fees removed. "Agency fees" are overstated by $60,000 per quarter.

[Investar]

   .... So $60K a month total operating income in 2009 -- what a pittance ...

Bearing in mind the platform was 'quiet' in Qtrs 1 and 2, I would tend to take Qtr 4 and say $91k a month appears to be forward operating income. I would then re-quote you and agree, "what a pittance!"

[Investar]

Are we sure they're taking origination fees as a one time shot?

FASB 91 (Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases) requires that you take loan origination fees to income over the life of the loan as an adjustment of yield.

Hmmmn. On the site's performance page Prosper reports Qtr 4 was $1.5 million in "AA" originations (0.5%) and $5.2 at the regular fee (3.0%). That amounts to $163,500 without subtracting whatever cut for WebBank. However, their 10-K reports $167,100 for the same period. Is that your "FASB 91" in play or margin of error from using two different number sets? I have no idea but I do have a headache from trying to digest the footnotes to accounting in the 10-K.

[Flying Missle]

I found the answer

Agency fees

Agency fees are a percentage of the amount borrowed varying by Prosper Rating and are recognized when the loan is funded to the borrower. Borrowers with a AA Prosper Rating are charged 0.5% with no minimum fee and borrowers with a Prosper Rating of A through HR are charged 3% or $50, whichever is greater. Prior to October 16, 2008, agency fees charged were the greater of 1% to 3% of the loan amount borrowed or $75.

Which surprises me since the SEC recognizes FASB as the authoritative instruction on accounting practices and FAS 91 is very clear about how origination fees are to be accounted for.

[Investar]

  Does the 10-K state how much Prosper pays WebBank for originating the loans?

No, and the Prosper/WebBank agreement provided to the SEC has had its exhibits redacted under a privacy request BUT (and ah-ha) it's a flat monthly fee:

S-1A of July 13, 2009 (pg 92) Transaction fees are charged as a percentage of the amount borrowed … and are recognized when the loan is funded to the borrower. Transaction fees are charged by WebBank and Prosper receives amounts equal to the transaction fees as compensation for loan origination activities. (pg F-21) On April 14, 2008, the Company entered into an agreement with a Utah-chartered industrial bank whereby ... The Company is required to pay WebBank a monthly fee of $20,000.

[Xenon481]

  Does the 10-K state how much Prosper pays WebBank for originating the loans?

No, and the Prosper/WebBank agreement provided to the SEC has had its exhibits redacted under a privacy request BUT (and ah-ha) it's a flat monthly fee:

S-1A of July 13, 2009 (pg 92) Transaction fees are charged as a percentage of the amount borrowed … and are recognized when the loan is funded to the borrower. Transaction fees are charged by WebBank and Prosper receives amounts equal to the transaction fees as compensation for loan origination activities. (pg F-21) On April 14, 2008, the Company entered into an agreement with a Utah-chartered industrial bank whereby ... The Company is required to pay WebBank a monthly fee of $20,000.

Holy crap. That means that Prosper would have had to pay WebBank half to 1/3rd of their origination fees for the month of March 2010.

[Investar]

   I parsed two lines from quarterly Consolidated Statements of Operations to see what the main source of income looked like in the 4th quarter.
   Now I can better predict a burn rate going forward.

Next I broke the most recent quarters into monthly chunks, focusing on numbers I needed to predict where we are versus where we need to be. I constructed a model for the 1st Qtr of this year too. With lender revenue eroding a little more each month as older loans mature, the volume of new loans needed to hit break-even keeps rising. The goal will get steeper and steeper for some months to come. This is the first I saw exactly how that 9 month "Quiet" period would come back to bite the bottom line.

Then I set out to answer the burning question: "What volume of loan originations does Prosper need each month to break even?" Answer: if they can hold the line on expenses $30 million a month will do it.

<< Refer to PDF attached >>

From where I sit a goal of $30 million a month in new originations looks like an awful tall order. So let's cut that down to $20 million. Oh yeah? How can we do that? Once Prosper has 36 months of $20's under their belt (and if they have held the line on expenses) the monthly picture looks like this:

            $ 500,000  from borrowers on $20 million originated @ 2.50% fee on avg
            $ 312,000  from lenders on 36 chunks of $20 million out there rolling
            $    3,000  from note trading on FolioFN (figuring $600k monthly volume)
            $ 775,000  < less cost of operation >
               ————
            $   40,000  MONTHLY PROFIT

Still a tall order because it's likely this much volume will require additional staff and overhead.

[Senator]

            $ 500,000  from borrowers on $20 million originated @ 2.50% fee on avg

Borrowers don't have any money - that's why they're looking for a loan.  This money comes from the lenders with a promise from the borrowers to pay them back.  Sadly, many don't.

[baeventures]

            $ 500,000  from borrowers on $20 million originated @ 2.50% fee on avg

Borrowers don't have any money - that's why they're looking for a loan.  This money comes from the lenders with a promise from the borrowers to pay them back.  Sadly, many don't.

Dynamite Drop In.

BAEVentures

[blue]

            $ 500,000  from borrowers on $20 million originated @ 2.50% fee on avg
            $ 312,000  from lenders on 36 chunks of $20 million out there rolling
            $    3,000  from note trading on FolioFN (figuring $600k monthly volume)
            $ 775,000  < less cost of operation >
               ————
            $   40,000  MONTHLY PROFIT

Does Prosper get anything from Folio? I was assuming the Folio 1% all went to Folio and the benefit to Prosper was the 'liquidity'? Did you find somewhere how much Prosper gets from Folio transactions?

[Investar]

            $    3,000  from note trading on FolioFN (figuring $600k monthly volume)

Does Prosper get anything from Folio? I was assuming the Folio 1% all went to Folio and the benefit to Prosper was the 'liquidity'? Did you find somewhere how much Prosper gets from Folio transactions?

Somewhere along the line we've been told the 1% fee charged to the note seller is split 50/50 between FolioFn and Prosper. I can't seem to lay my hands on that document now.

[Investar]

Looking Inside the Cost of Operations

Prosper's Consolidated Statement of Operations lumps all $10 Million dollars of operating expense into just 7 lines. I've torn apart two of those lines, the ones I'm most curious about: Professional Services and Compensation and Benefits. Three-fourths of Prosper's overhead is tied up in these two lines. Lobbying, lawyering, auditing, I especially wanted to see what kind of hurt that class action lawsuit was putting on the bottom line.

Moving inside the company, who's pocketing what? For as much guff as Chris Larsen gets (and I've laid some on him occasionally), turns out he rewards his employees where it counts and counts them as important partners. Employee compensation on average is 60% of averaged principal's salaries, a notably high ratio.

You can view my work here on the SCP Forum:
http://forums.go4reward.com/the-prosper-marketplace/prosper's-2009-financial-report/msg3539/#msg3539

When all you're given is the bottom line there's room for error of course. And you can't pinpoint every specific. Still, I found the exercise helpful.

[Urbi_et_Orbi]

The $270,000 you list for Prosper's lobbying in 2009 is, as far as I can tell, an accurate representation of Prosper's payments to Podesta Group for their effort as an individual company.

http://www.opensecrets.org/lobby/clientsum.php?lname=Prosper+Marketplace&year=2009

I doubt it will change your numbers significantly, but it is perhaps likely that Prosper also contributed to the lobbying expenses related to the "organization" they created to give their lobbying effort the "veneer of respectability."  

The fees paid to the Podesta Group in 2009 by the "Coalition for New Credit Models" was $100,000.

http://www.opensecrets.org/lobby/clientsum.php?lname=Coalition+for+New+Credit+Models&year=2009

[Investar]

... I doubt it will change your numbers significantly, but it is perhaps likely that Prosper also contributed to the lobbying expenses related to the "organization" they created to give their lobbying effort the "veneer of respectability."

The fees paid to the Podesta Group in 2009 by the "Coalition for New Credit Models" was $100,000 ...

Yeah, I'll speculate Prosper's number for lobbying and consulting was 20-25k higher than I show. I'd hafta suppose each of the six coalition members paid 'dues' and $100k of the kitty went to Podesta. There were seven members but Loanio has dropped out, ostensibly unable to contribute 'cause they are in "quiet" (possibly an eternal quiet?). Also possible that Prosper reported their contribution to the coalition in the $1 million expense line "Other." If the receipt said 'membership dues' that's where it would be.

You say, "the organization they (Prosper) created." Anybody check to see who filed the fictitious name registration? How close can you get to proving formation of the coalition was a 'you guys sign up, our office will do the paperwork and set up the website' sort of affair?

ETA Gees, just realized the dark hole called "Other" expenses is 10% of total outlay. That-sa lot-ta other. Well no doubt the NASAA fines explain a major portion. Quoting the 10K, "As of December 31 we had entered into 27 consent order agreements and have paid an aggregate of $356,555 in penalties."