This Fintech Sold Off Hard After Earnings, But It's Primed For A Big 2025

Core Thesis - The financial sector is expected to outperform in 2025 due to decreasing inflation, an uninverted yield curve, and low valuations compared to the market [1] Financial Sector Overview - Fintech stocks, particularly LendingClub, were significantly impacted by rising interest rates in 2022-2023, but may rebound as rates decline [2] - LendingClub's stock fell approximately 20% after its Q4 earnings report, despite slightly beating revenue expectations [5] LendingClub's Performance - LendingClub's Q4 originations were $1.846 billion, a 13% increase year-over-year, but management projects Q1 originations to be flat at $1.8 billion to $1.9 billion, below analyst expectations of $2.01 billion [6] - The company’s prior originations peaked at $3.8 billion in Q2 2022, leading to disappointment in the slower growth rate [7] Market Position and Strategy - LendingClub's marketing spend decreased year-over-year, while its underwriting performance showed delinquencies 44% to 50% lower than peers [8] - The company has shifted focus to lower-cost marketing channels and engaging previous customers due to the downturn [10] Loan Pricing and Accounting - Loan sale pricing improved to about 98 cents on the dollar, allowing LendingClub to consider re-entering higher-cost marketing channels [11] - LendingClub's accounting method requires it to take immediate reserves against "held-for-investment" loans, impacting reported earnings [15][16] Comparative Analysis with SoFi - LendingClub trades at 1.2 times tangible book value, significantly cheaper than SoFi's 3.4 times, despite SoFi's recent revenue growth of 19% [13][14] - When adjusting for accounting differences, LendingClub's pre-provision net revenue was $74.4 million, up 33.7% year-over-year, indicating stronger underlying performance than reported [17][18]