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While Worries Linger, Upbeat Mood Among Online Lenders About Turnaround Progress

While Worries Linger, Upbeat Mood Among Online Lenders About Turnaround Progress
Even while analysts expressed their concerns with the health of the online lenders' sector, stocks in this sector were sent soaring after LendingClub Corp and OnDeck Capital Inc surprised investors very recently with strong growth forecasts and good quarterly results.
Bbanks pulled back from traditional lending and borrowers sought other options soon after the global financial crisis of 2008-09 and this was the time that there was a growth of online lenders whose popularity also soared at the same time. But the sector has been prompted to conduct a review its business model, which tends to attract borrowers with low credit quality, by the fact that funds have been harder to be raised by the sector due to rising delinquencies.
Cutting of costs and trying to attract borrowers with better credit are being done by LendingClub, which serves individuals, and OnDeck, which caters to small businesses.
Soon after announcing their second quarter results for the current fiscal, executives of both companies were upbeat about the progress in their turnaround plans.
"It's great to be back to growth," LendingClub Chief Executive Scott Sanborn said in an interview. "We are excited about the momentum building in the business and the massive opportunity that lies ahead."
LendingClub founder Renaud Laplanche, was ousted in a scandal over disclosures and potential conflicts of interest, last year and Sanborn had taken over the CEO role after that inicident.
OnDeck CEO Noah Breslow called it "a positive quarter" during a post-earnings interview.,
"We have done a lot of work to restructure the business," he said.
While there was a jump of 18.5 percent higher at $5 I the shares of OnDeck which closed at $5, LendingClub shares saw a rise of 4.8 percent to close $5.46 soon after the quarterly results were announced. While remaining far below their initial public offering prices of $20 and $15, respectively, both the stocks rose in after-hours trading.
While questioning whether online lenders could deliver on promises for loan growth, credit quality and profitability, analysts probed executives about their forecasts, on conference calls.
BTIG analyst Mark Palmer wrote in a research note that the company remains a "'show me' story for investors", even while OnDeck's initiatives were bearing fruit.
People familiar with the matter had told Reuters last Friday that at a price that would slash its market value by more than 70 percent, Prosper Marketplace Inc., another online lender, has been looking to raise a new round of funding in exchange for equity. The sources requested anonymity because they were not authorized to speak publicly about the matter.
Prosper's fundraising effort first reported the information last week.
Bloomberg News reported on Friday that noting far less than the $300 million it has raised from investors, Earnest Corp is looking to sell itself for $200 million.
Venture capitalists, investment bankers and analysts have said in recent weeks that mergers could be on the horizon for the sector that has been expected to consolidate for several months. For the fact that they would need to spend less money on marketing and technology, and be able reach more customers, companies can improve profits by merging , at least in theory.
"There have been too many princes wanting to be kings and they will not all be successful," Ryan Gilbert, partner of financial technology venture capital firm Propel Venture Partners, said in an interview.

Christopher J. Mitchell

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