Online lenders are taking a beating
Shares of online lenders have been pounded after business lender On Deck Capital reported disappointing earnings and analysts backed away from the stock, citing growth concerns.
On Deck Capital shares lost more than 33 percent in trading Tuesday, and Lending Club, which focuses more on consumer loans, saw shares drop by 10 percent. Wednesday, both stocks fell again, with Lending Club losing more than 3 percent at the open and On Deck stock falling 9 percent. On Wednesday morning, On Deck Capital was down 7.34 percent at $5.10 a share; Lending Club was down 2.46 percent at $6.94.
Lending Club earnings are expected Monday.
FBR Capital Markets analysts downgraded its call on On Deck Capital to "market perform," saying the company faces a "longer runway to sustainable profitability."
FBR analyst Bob Ramsey blamed the weaker outlook on reduced volume of loans sold and slower origination stemming from diminishing marketplace demand and tougher underwriting standards.
Jefferies on Tuesday cut its rating to "hold" and lowered its price target from $18 to $6.50 a share. While On Deck Capital established a partnership with JPMorgan Chase to expand its loan marketing, analysts at Jefferies said "the program is still in pilot mode and not expected to contribute materially to results in 2016."
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Part of online lenders' difficulty in 2016 stems from a reduction in available capital to commit to borrowers. While the fintech lenders have increased partnerships with banks — whether to originate loans or to sell loans to investors led by individual banks — the volatile market they encountered at the start of the year tested business their models, forcing some fintech firms to alter their strategy.
On Deck and Lending Club declined to comment.
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On Tuesday, The Wall Street Journal reported another private online lender, Prosper Marketplace, plans to close a satellite office and make substantial cuts to staff after ramping up hiring in 2015.
"With the recent tightening of the capital markets we are refocusing on our core consumer loans business and building more resiliency into the company," Prosper CEO Aaron Vermut said in a statement. "The Prosper loan portfolio continues to perform and meet investor expectations."