[avatar user="Tom Mitchell" /]
As the autumn nights have drawn in, many financial analysts have begun to reflect on a year that has already seen the peer-to-peer industry break numerous records globally. Yet recent news from the US suggests that our fledgling industry is set to achieve another significant milestone before the year is out.
Having launched in 2007, Lending Club fast became the largest peer-to-peer lending platform in the USA – and, indeed, the world – having originated over $6.2 billion of loans to date. As such, news of the platform’s planned Initial Public Offering (IPO) on the NYSE has been greeted with enormous interest, with numerous investment banks vying to manage the deal.
This event, which is currently scheduled to take place later this month, carries real significance for two key reasons in the author’s opinion. Firstly, it serves to validate the peer-to-peer experiment begun by Zopa in the UK, and followed in the US by Lending Club and Prosper. As Orchard’s Matt Burton puts it, “No one took social media seriously until Facebook IPO-ed. For all the people who are not taking this space seriously it’s harder to ignore once you have companies go public.” Lending Club’s CEO Renaud Laplanche has echoed these sentiments, explaining in an interview that it is a perfect opportunity to strengthen their brand and develop awareness.
Secondly, and equally importantly, the value that is ascribed to Lending Club by the market will naturally set a precedent for all future platforms that look to issue equity in the capital markets. As it stands, many analysts predict that a valuation of between $4 billion - $5 billion is the likely outcome. However, given that the platform will be the first peer-to-peer lender to IPO, an obvious question arises: how should the company actually be valued? In predicting a valuation of over $4 billion, the majority of analysts have chosen to align Lending Club with technology firms such as Twitter and Facebook, which often trade at many times book value and other multiples. But to value Lending Club as a pure technology company is problematic, for it ignores the fact that, despite its new and innovative structure, Lending Club is also a financial services provider. More traditional financial institutions, such as banks, usually trade at much lower multiples than technology firms, and as a result the platform’s current valuation leaves it at odds here.
One would hope that analysts’ current appraisals of Lending Club prove to be a true reflection of the company’s future earnings potential. Whatever value the market ultimately places on the platform, though, the ramifications from its IPO will be substantial.