LendingClub Corp. soared to an $8.52 billion valuation after its initial public offering, shining a spotlight on the fast-growing peer-to-peer lending industry and setting a high bar for a company that aims to transform banking.
LendingClub and its backers raised a larger-than-expected $870 million from the IPO, which was priced at $15. Shares rose 57% to $23.60 as of 1:11 p.m. in New York, lifting its valuation higher than all but 13 U.S. banks, data compiled by Bloomberg show. Its shares finished the day at $23.43.
As the first peer-to-peer, or marketplace, lender to go public, LendingClub is stoking enthusiasm for an industry it helped create. The San Francisco-based company arranges loans to individuals and small businesses over the Internet using funds from investors who can commit as little as $25. The model has inspired dozens of competitors and businesses that seek to profit from the industry's expansion.
"The entire traditional lending space has to take this seriously," said Matt Burton, the CEO of Orchard Platform, which provides data and analytics for institutional clients investing through the platforms. "It will only accelerate the exponential growth we're already seeing in the industry."
LendingClub has arranged more than $6 billion in loans since its founding in 2007 by Chief Executive Officer Renaud Laplanche. While that's just a tiny fraction of the outstanding consumer debt in the U.S., the company has been growing. In recent years, the business has more than doubled the amount of loans it facilitates annually.
Its main products are three- and five-year unsecured consumer loans with interest rates that average about 14%. That's less than what borrowers would typically pay when carrying a credit-card balance. Investors of all stripes from individuals and family offices to banks and large asset managers are using the platform. LendingClub earns money by charging transaction and servicing fees.
Net revenue at the company more than doubled to $144 million in the first nine months of the year, compared with the same period in 2013. While the company has posted losses this year, it was profitable during 2013.
"The expectations of its growth potential are obviously quite high," said Mark Palmer, an analyst at BTIG LLC. "If the company delivers on the growth trajectory that we believe they are capable of delivering on, then certainly the valuation could be justified. It's a question of execution and how quickly they get there."
The IPO is serving as a barometer for an industry of alternative lenders trying to use technology to transform how people borrow money. Another in the group, On Deck Capital Inc., is expected to price its IPO next week, and others are watching the results as they decide whether to stick to venture funding, go public or sell themselves.
LendingClub sold 50.3 million of the shares in the IPO, according to a release Wednesday. It will use the proceeds for working capital, expenditures and debt repayment. The company may allocate some of the funds for acquisitions as well.
The lender has already taken steps in this direction with its April acquisition of Springstone Financial LLC a provider of loans for students and people seeking to pay for elective medical care for $140 million.
Laplanche said Thursday that his company will continue to offer new products as it grows.
LendingClub is trying "to transform the entire banking system, make it more efficient, more customer-friendly, more transparent," the CEO said in an interview on Bloomberg Television. "It's going to take several decades, but I think we have a good start."
Existing investors Canaan Partners, Kleiner Perkins Caufield & Byers and Union Square Ventures offered 7.7 million shares in the offering.
LendingClub's model has attracted high-profile backers. Former Morgan Stanley Chairman and Chief Executive Officer John Mack sits on the board, as does Mary Meeker, who previously worked as a research analyst at the firm and is now a partner at Kleiner Perkins. Larry Summers, the former U.S. Treasury secretary and president emeritus of Harvard University, is also a director.
Morgan Stanley and Goldman Sachs Group Inc. managed the offering. The shares are listed on the New York Stock Exchange under the symbol LC.