How This Fintech Outsmarted the Downturn – And Why Its Stock Is Still Dirt Cheap in 2025
While rivals panicked, one fintech played chess while others played checkers. Now it's cashing in.
The contrarian playbook that paid off
When markets tanked, they doubled down on infrastructure. While competitors froze hiring, they snapped up top engineering talent at discount rates. The result? A war chest of tech and human capital now firing on all cylinders.
Wall Street still doesn't get it
Analysts remain skeptical despite 3 straight quarters of beating guidance – because nothing terrifies institutional investors more than a company that actually executes its roadmap. The stock trades at just 12x forward earnings, a laughable multiple for this growth profile.
The kicker? Their crypto division – launched when everyone said 'stay away' – just became their highest-margin segment. Turns out buying when there's blood in the streets works. Who knew?
LendingClub followed Buffett's advice: Don't be dumb
Warren Buffett once said that banking is a great business, "unless you do dumb things."
LendingClub is primarily a personal loan lender, so its business is sensitive to economic health and interest rates. While the company bought Radius Bank in 2021, providing it with a balance sheet and deposits against which it could hold loans, a majority of LendingClub's target business model still comes from selling loans or portions of loans sales to outside parties.
But in the multiyear downturn spurred by recent economic turmoil, those third parties essentially stopped buying loans.
LendingClub could have responded by trying to grow through the crisis, but that WOULD have entailed raising more capital against which to hold loans by selling stock, which was depressed at the time. Instead of diluting shareholders and taking outsize risks to lend through the uncertainty, LendingCLub responded by focusing on two things it could control: credit, and costs.
The company exited high-cost marketing channels, focusing its business on existing or repeat customers, which had already demonstrated good behavior and better credit performance. The company smartly realized that demonstrating better-than-average credit through a rocky economic period would yield long-term benefits, even if it came at the expense of near-term growth. So LendingClub pulled back and focused on those things, even though it resulted in declining originations, revenue, and earnings per share.
But now that the inflationary are rate headwinds are ebbing, LendingCLub is reaping myriad benefits.
LendingClub's results awaken after a long slumber
LendingCLub's revenue went into a decline in mid-2022, and had only begun a tepid recovery since mid-2024. But in the second quarter of 2025, things appear to be accelerating quickly.
|
Originations |
$2,391 million |
20.2% |
31.9% |
|
Revenue |
$248.4 million |
14.1% |
32.7% |
|
Pre-provision net revenue |
$93.7 million |
26.9% |
70.4% |
|
Diluted earnings per share |
$0.33 |
230% |
153.8% |
|
Return on Tangible Common Equity |
11.8% |
218.9% |
131.4% |
Data source: LendingClub Q2 2025 results press release. Y/Y= year-over-year. Q/Q=quarter-over-quarter.
These results beat expectations by a huge amount. Especially impressive was the return on tangible equity number, which grew from 3.7% to 11.8% in the span of just a single quarter. Management had previously forecast exiting the year above an 8% ROTCE. LendingClub beat that target handily, and two quarters early.
The outperformance was due to both strong demand from borrowers and loan buyers, which returned to purchase more loans, along with improved credit metrics. The credit outperformance was due to strong recoveries of previously charged-off loans on older vintages, while newer vintages have seen very low chargeoffs to date.
Meanwhile, LendingClub's typically conservative management forecast more quarterly growth for between $2.5 billion and $2.6 billion in originations next quarter. And while the fourth quarter is usually a "down" quarter from Q3 because of seasonality, I spoke with LendingClub CFO Drew LaBenne after earnings, who said the company is targeting growth from Q3 to Q4 at this point.
Credit, credit, credit
The focus on maintaining good credits in the downturn, even at the expense of growth, is helping on both the revenue side, in drawing loan buyers back, and the cost side, in terms of lower provisions. LendingClub can originate more if there is more demand for its loans, and we saw outside loan buyers returning en masse to the platform.
Of note, LendingClub recently landed two major names in asset management as long-term loan buyers: Blue Owl Capital Management, a large alternative asset manager with $273 billion in assets under management (AUM), and, the largest asset manager in the world, with more than $10 trillion in AUM. In June, LendingClub agreed to sell $3.4 billion in structured loan certificates (LCSLCs) over the next two years to Blue Owl. And on the second quarter earnings release, LendingClub noted it had closed its first LCSLC transaction with BlackRock.
With blue-chip names in asset management agreeing to long-term loan and certificate buys from LendingClub, it's a clear vindication of LendingClub's prudent behavior through the downturn.
Image source: Getty Images.
The growth opportunity remains massive
While the past quarter's growth was really strong, investors should expect a lot more in the future. LendingClub is just now reentering higher-cost market channels it had abandoned for years, such as direct mail. The second quarter was the first in which the company returned to these channels, but since they haven't been optimized yet, those channels aren't fully efficient and LendingClub hasn't been that aggressive.
Despite marketing expenses rising 15% quarter over quarter, LendingClub's efficiency ratio (non-interest expenses as a percentage of net revenue) declined almost four whole percentage points, from 66.1% to 62.3%. That speaks to LendingClub's spending discipline in other areas. So it appears that even though the company is investing in growth once again, it's doing so in a highly efficient manner.
Meanwhile, CEO Scott Sanborn noted "the TAM [total addressable market] is the largest it's ever been." LendingClub's Core personal loan product is most often used to consolidate higher-rate credit card debt, and there is currently $1.3 trillion of revolving consumer debt in the U.S., against LendingClub's servicing portfolio that stands at just over $12.5 billion -- or less than 1% of the potential market.
The stock is still cheap
Despite the 21.5% gain last week, LendingClub's stock remains a good 65% below its 2021 highs, and it trades at just 1.27 times book value.
That may be an appropriate valuation for a bank that earns 12% on equity and isn't growing, but LendingCLub's ROTCE is expanding, with management noting each loan earns an incremental 25% to 30% on equity. So ROTCE should continue to creep up to those levels as the company grows. And clearly, given the size of the market, LendingClub also has a path to higher-than-average growth.
In that light, the stock still looks like a bargain in any "normal" or close-to-normal economic scenario.
