Q2: OnDeck Disappoints, LendingTree Goes Silent

An increase in traditional lending to SMEs and the impending threat of a regulatory crackdown are generating more skepticism than ever when it comes to the alternative lending industry. The market’s current uncertainty means investors, borrowers and analysts will be more curious than ever about the performance of alt-lending players.

On Monday (Aug. 3), OnDeck Capital and LendingTree both published their earnings reports, with mixed results. Despite OnDeck’s loan origination growth and entry into new markets, the company saw its sharpest stock drop following its earnings release. And for LendingTree, despite talk of a new focus on small business lending, the company hardly scraped the surface of its SME financing activity. PYMNTS breaks down the reports below.

OnDeck

Ahead of OnDeck’s official earnings report, the company released some news that excited investors: The company hit a new record of $143 million worth of small business loan sales through its Marketplace platform, a figure that boosted its earnings expectations up to $63.5 million in revenue.

During Monday’s conference call, OnDeck CEO Noah Breslow cited this accomplishment as he announced $63.3 million in gross revenue for the quarter, a 78 percent increase from the same period last year and on-target with expectations. Other statistics were similarly positive: OnDeck saw a 69 percent hike in loan originations, which reached $419 million in Q2 2015, a development boosted by the just-announced agreement with Jefferies Group that sees the affiliate purchasing up to $500 million in SME loans through OnDeck Marketplace over the next 12 months. Additionally, Breslow highlighted the new $100 million credit facility in partnership with Bank of America, as well as a $50 million credit facility with SunTrust.

OnDeck attributed its growth to several initiatives, including these bank partnerships, its new mobile app and a decline in repayment delinquencies.

“We generated triple-digit originations volume growth, year over year, in our Direct and Strategic Partner channels, continued investing in brand awareness and technology innovation and established credit facilities with two of the top banks in the country,” Breslow said in a press release announcing the earnings.

But the company didn’t ignore the multiple factors that could lead OnDeck to take a hit in its finances. OnDeck saw a bit of a flop with its marketing campaign, reporting fewer SME loan applications than expected from the initiative.

Further, Breslow acknowledged the rising competitive landscape in small business lending. “There are no two or three competitors dominating this trend, but we know the sheer number of marketing solicitations targeting small businesses have grown meaningfully over the last six months, which impacts our response rate,” he said.

The executive added, however, that peers like PayPal, Square and Amazon don’t pose much of a threat to OnDeck. “They really don’t overlap much with OnDeck’s core customer,” Breslow stated. “Those folks are really very low down on our competitive depth chart in terms of how often we encounter them.”

He also recognized the Treasury’s recent request for information from alternative lending players like OnDeck. “We actually think this is a really good thing,” Breslow said.

Looking ahead, OnDeck said its continuing operations in Canada and its impending launch in Australia are opening new channels for revenue for the company, and the company will focus much of its future investments in IT, compliance and security. But a weakened full-year earnings forecast led OnDeck shares to plummet in their steepest drop since the company went public last December. According to Bloomberg reports, OnDeck stock fell 25 percent Tuesday morning, amounting to a 46 percent decrease in share price since its IPO.

LendingTree

Unlike OnDeck, LendingTree launched with a focus on consumer lending. But last quarter the company cited a renewed effort with SMEs and has since inked a partnership with Dealstruck as part of the initiative.

However, on Monday, LendingTree Founder, Chairman and CEO Doug Lebda stayed mum on those commercial lending ventures. While the executive said the company “couldn’t be more pleased” with its earnings — the company announced a 35 percent revenue increase compared to Q2 2014, hitting $55.1 million — the majority of this growth was attributed to consumer financing.

Non-mortgage lending products, which incorporate both consumer and business loans, reached $17.9 million in Q2, a 139 percent increase from the same period in 2014. But LendingTree declined to break down the exact numbers for each segment. “We are not going to give out details on everything,” Lebda said in response to a question for specifics of non-mortgage loan figures. Instead, he said he is “thrilled with that across the board,” adding that personal loans are the largest non-mortgage loan segment in terms of dollars.

Unfortunately, the only mention of small business lending was a similarly generic comment made by Lebda. “In small business loans,” he said, “we continue to focus on improving our matching algorithm. Matching small business owners with the proper array of lenders to suit their specific needs.”

It hasn’t been long since LendingTree announced plans to ramp up its small business financing efforts, so it will likely take some time before those efforts earn the spotlight on the earnings report. And despite the silence on SME finance, LendingTree’s overall impressive figures led to share spikes on Tuesday.