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[SLN]

This appeared on the WSJ site this morning - it values Lending Club at a whopping $275 million.
http://blogs.wsj.com/digits/2011/08/03/lending-club-nabs-25-million-in-new-funding/

[kenL]

This is AWESOME news!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Let's breakdown the $275.

According to lendstats LC has $212 million in outstanding loans

Now they probably have about $35 million in cash

which gives a total of $247 million.

What's the remaining $28 million? Good will assets? Idle lender cash?

[buffetrand]

I'm confused.... doesn't this just mean they paid 25 million for about a 10% share of the company? (which is still awesome)

[Urbi_et_Orbi]

This is AWESOME news!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Let's breakdown the $275.

According to lendstats LC has $212 million in outstanding loans

Now they probably have about $35 million in cash

which gives a total of $247 million.

What's the remaining $28 million? Good will assets? Idle lender cash?

Are you actually suggesting that outstanding loans and idle lender cash would directly correlate to the company's market valuation?

[SLN]

Are you actually suggesting that outstanding loans and idle lender cash would directly correlate to the company's market valuation?

I think Lending Club's valuation has nothing to do with outstanding loans, lender cash or any other metric you could name. Deals like this are all about potential. It is a bit like Facebook supposedly being worth $80 billion or Twitter $8.5 billion when their sales are a tiny fraction of this amount and their profits an even tinier fraction. People are betting that one day they will be big, much bigger than they are today. And these future numbers will hopefully justify the lofty valuation of today.

[kenL]

This is AWESOME news!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Let's breakdown the $275.

According to lendstats LC has $212 million in outstanding loans

Now they probably have about $35 million in cash

which gives a total of $247 million.

What's the remaining $28 million? Good will assets? Idle lender cash?

Are you actually suggesting that outstanding loans and idle lender cash would directly correlate to the company's market valuation?

Yes to the outstanding loans, but I'm not sure about the idle lender cash, hence the question.

Without taking outstanding loans into consideration, there is NO WAY LendingClub is worth $275 million.

The outstanding loans are assets of LendingClub aren't they? And lenders are unsecured creditors aren't they?

Ratios of (outstanding loans/valuation) from one year ago and today are about equal. Is that just coincidence?

The value of outstanding loans is the number that I think is the most important when talking about profitability (so far no one has agreed with me on that, but that's OK, I have become used to countering public opinion). When that number starts getting close to 1 billion, then we can start talking profitability (and I'm willing to bet that at that time their valuation will also be around 1 billion. Will y'all continue to claim it's just a coincidence then?).

[Urbi_et_Orbi]

Are you actually suggesting that outstanding loans and idle lender cash would directly correlate to the company's market valuation?

I think Lending Club's valuation has nothing to do with outstanding loans, lender cash or any other metric you could name. Deals like this are all about potential. It is a bit like Facebook supposedly being worth $80 billion or Twitter $8.5 billion when their sales are a tiny fraction of this amount and their profits an even tinier fraction. People are betting that one day they will be big, much bigger than they are today. And these future numbers will hopefully justify the lofty valuation of today.

I would tend to agree with you.  I think/suspect/hope KenL is completely off-base on this point.

[kenL]

Are you actually suggesting that outstanding loans and idle lender cash would directly correlate to the company's market valuation?

I think Lending Club's valuation has nothing to do with outstanding loans, lender cash or any other metric you could name. Deals like this are all about potential. It is a bit like Facebook supposedly being worth $80 billion or Twitter $8.5 billion when their sales are a tiny fraction of this amount and their profits an even tinier fraction. People are betting that one day they will be big, much bigger than they are today. And these future numbers will hopefully justify the lofty valuation of today.

I would tend to agree with you.  I think/suspect/hope KenL is completely off-base on this point.

Ok this is what I think, if I'm way off, so be it:
Right now LC is burning cash like there is no tomorrow (1 million/month). There is no profit in sight, so the only thing they have of value is assets. Until profitability is within sight, their valuation will be based on their assets.

So let me put my prediction in. In one year I bet that LC's valuation will be about 1.1 times the amount of outstanding loans+cash (which should be around $450 million, depending on growth of course, so their valuation should be around $500 million).

[buffetrand]

Ken, you would need to include liabilities as well as assets making the 200 or so million disappear....

 Surely this 275 million valuation is based on LC's potential to earn actual money and the fact that it is close to outstanding principle is simply coincidence.

[nonattender]

Are you actually suggesting that outstanding loans and idle lender cash would directly correlate to the company's market valuation?

I think Lending Club's valuation has nothing to do with outstanding loans, lender cash or any other metric you could name. Deals like this are all about potential. It is a bit like Facebook supposedly being worth $80 billion or Twitter $8.5 billion when their sales are a tiny fraction of this amount and their profits an even tinier fraction. People are betting that one day they will be big, much bigger than they are today. And these future numbers will hopefully justify the lofty valuation of today.

I would tend to agree with you.  I think/suspect/hope KenL is completely off-base on this point.

Ok this is what I think, if I'm way off, so be it:
Right now LC is burning cash like there is no tomorrow (1 million/month). There is no profit in sight, so the only thing they have of value is assets. Until profitability is within sight, their valuation will be based on their assets.

So let me put my prediction in. In one year I bet that LC's valuation will be about 1.1 times the amount of outstanding loans+cash (which should be around $450 million, depending on growth of course, so their valuation should be around $500 million).

I haven't read a filing in forever.  How deep is LC into SVB or other creditors, these days?

-t

[ira01]

Ken, you would need to include liabilities as well as assets making the 200 or so million disappear....

 Surely this 275 million valuation is based on LC's potential to earn actual money and the fact that it is close to outstanding principle is simply coincidence.

+1.  Of course LC's valuation is not based on its loan portfolio, which can't be considered without also considering the equal liability of the amount of the loans owed to the lenders. 

[kenL]

OK, I agree lender assets should not be considered part of the valuation. But what do you think about the fact that the valuation and money owed to creditors (including lenders) are both about $275 million? Is it just a coincidence?

[red12049]

If you were an individual looking to purchase LC, what would you pay for?  Real Estate?  Office furniture?  Client list?  As far as I can see the only value LC has right now is potential.  As for it's current loan portfolio, if you equate that to receivables (not a direct comparison, I understand that), in most other businesses, a factor would offer to buy those receivables at a discount.

R

[kenL]

If you were an individual looking to purchase LC, what would you pay for?  Real Estate?  Office furniture?  Client list?  As far as I can see the only value LC has right now is potential.  As for it's current loan portfolio, if you equate that to receivables (not a direct comparison, I understand that), in most other businesses, a factor would offer to buy those receivables at a discount.

R

Good points. Even though lender assets themselves are not part of the value of the company, it does seem however that current lender assets are a big part of the valuation equation, which is fine and as it should be.

[ira01]

OK, I agree lender assets should not be considered part of the valuation. But what do you think about the fact that the valuation and money owed to creditors (including lenders) are both about $275 million? Is it just a coincidence?

Yes.  What was LC's (or Prosper's) valuation when it started, and had $0 in loans?  Tens of millions of dollars.

Certainly as LC's loan portfolio grows so does its value, because a larger loan portfolio means higher servicing fees, and a bigger customer base (lenders and borrowers).  It also leads to greater name recognition and goodwill, which also increase the value.  But there is not a one to one correlation between the size of the loan portfolio and LC's value, in any way other than coincidence.