Prosper's earnings suffer from cost of deal that bolstered funding

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Prosper Marketplace reported a $115 million net loss for 2017 as the San Francisco-based online lender felt the consequences of a deal that eased its funding struggles early last year.

Under the February 2017 deal, a consortium of institutional investors received an equity stake in Prosper based on the volume of loans they purchased. At the time, Prosper’s loan origination volume had fallen sharply, and CEO David Kimball said that the agreement would provide funding stability.

It has done so, but at a price. The fair value of the warrants vested on the sale of borrower loans totaled $60 million, accounting for more than half of Prosper’s net loss in 2017, according to the company’s annual report.

The privately held company also recorded a $29 million expense due to the change in fair value of convertible preferred stock warrants that were issued in connection with a 2016 legal settlement.

Prosper uses an online platform to match borrowers — often consumers seeking to consolidate credit card debt — with individual savers, hedge funds and other investors. The 12-year-old company was a pioneer, alongside LendingClub, in a market where banks, including Goldman Sachs, have started to compete.

Prosper originated $2.9 billion in loans in 2017, up 31% from the previous year.

Its employee headcount rose to 377 — up 6% from the previous year, but still 39% below its level at the end of 2015.

Prosper’s adjusted earnings before interest, taxes, depreciation and amortization — a measure of earnings that does not conform with generally accepted accounting principles — were $5.46 million in 2017. That was a substantial improvement from a loss of $38 million according to the same measure during the prior year.

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