LendingClub rode the fintech wave. Did it have to come crashing down?
Good morning, and welcome to Protocol Fintech. This Thursday: LendingClub’s wild ride, Putin’s crypto rules, and the question of who will gain Lehane’s brain.
On the daily
More years ago than I care to admit, I wrote a weekly column on new hires for Red Herring, a magazine about tech and business. Watching the movements of smart people from company to company is one of the best predictors of business success in Silicon Valley, I quickly learned. Every Thursday in Moves, you’ll find just such a list of key players in fintech compiled by Lindsey Choo, and occasionally a note from me on a particularly interesting leap. Today, I jotted down some thoughts on Chris Lehane’s shift from Airbnb to Web3.
Market jitters spoil LendingClub’s ride
Buying a bank turned LendingClub into a feel-good fintech story last year. But its valuation turnaround was upended by an anxious stock market, and its fall should serve as a red flag for other fintechs.
The neobank’s stock slide late Wednesday didn’t really make sense based on the company’s solid earnings, including revenue and profit that beat analysts’ targets. But the mood on Wall Street is changing.
“It’s weird,” Alex Johnson, fintech director of Cornerstone Advisors, told Protocol. “If I had to guess, I’d say that LendingClub is taking the same hit that most other fintech stocks — and tech stocks generally — are taking as investors try to recalibrate valuations.”
“There’s a lot of volatility and a lot of anxiety,” LendingClub CEO Scott Sanborn told Protocol. “The virus, interest hikes, you name it.”
- It didn’t help that LendingClub reported the same day the Federal Reserve suggested that interest rates will likely go up in March, the first such shift in more than three years.
- “The days of cheap money are coming to a halt,” said analyst Melody Brue of Moor Insights & Strategy. That could be bad news for fintechs.
- “The value of future earnings just got lower, so high-growth companies are being re-rated based on that,” Sanborn said.
- Higher funding costs would mean less profitability for LendingClub and other fintechs and banks. Raising equity could also be tougher.
But LendingClub is actually in good shape. That’s what makes Wall Street’s reaction so curious. The company is “unusually profitable for a neobank, which should help their share price bounce back a little faster than other fintech stocks,” Johnson said.
- Yes, the neobank’s revenue outlook is softer than what Wall Street projected, but it actually represents a meaningful gain, Sanborn said.
- The company’s in such a strong position, it’s eyeing more investments in marketing to grow its user base, he said.
- It’s also “taking the opportunity to take more loans on the balance sheet” which “sets us up for future earnings,” he added.
- “I don't think the current price action paints the full picture of the business outlook, even with those risks,” said Brue.
The bottom line is that fintech is in a fragile state. The transition to higher rates will sort out quickly which firms are going to make it. If you thought LendingClub had it rough, what kind of thrashing are investors going to give to companies that are losing money?— Ben Pimentel (email | twitter)
A MESSAGE FROM CLARI
Club Revenue on Nasdaq digs into the strategies driving revenue growth at the highest performing companies. Tune in as Clari’s CMO Cornelius Willis interviews innovative revenue leaders to learn their tactics for building sales teams that drive unmatched success for their customers.
On the money
On Protocol: UBS is expanding its reach among millennial and Gen Z investors by buying Wealthfront. The financial services giant shelled out $1.4 billion in cash for the robo-adviser.
Also on Protocol: A Walmart-backed fintech startup is planning to become the latest super app catering to all of a consumer’s financial needs. The competition is brewing: PayPal, Block and Affirm are also developing super apps.
FTX’s U.S. arm is now worth $8 billion. It raised $400 million in its first round of outside funding, which included international investors like Japan’s SoftBank Group and Singapore’s Temasek Holdings.
Diem may have found a buyer. The Meta-backed crypto project has agreed to sell its technology to Silvergate Capital, its bank partner, according to The Wall Street Journal.
The CFPB is scrutinizing finance companies for charging “junk fees.” Agency head Rohit Chopra called out banks, credit unions, mortgage lenders and fintechs for giving customers a raw deal. He said he would launch a review on fees charged to consumers, including fees for late payments, insufficient funds and account maintenance.
The Wall Street Journal has a profile of Fidelity CEO Abigail Johnson, who has leaned into tech investments and said she hasn’t had any discussions about business combinations: “I want to build a business for the future.”
Vladimir Putin wants the Bank of Russia and the Ministry of Finance to get it together and decide on crypto regulation: “The Central Bank does not stand in our way of technological progress and makes the necessary efforts to implement the latest technology in this area.”
Remember when Elon Musk made an appearance on “Saturday Night Live” to promote dogecoin? Now, he says he’s ready to make another pitch for it by eating junk food on TV. “I will eat a Happy Meal on tv if McDonalds accepts Dogecoin,” he tweeted.
David Marcus, co-creator of the apparently doomed Diem project, thinks crypto winter is a good thing. “It’s during crypto winters that the best entrepreneurs build the better companies. This is the time again to focus on solving real problems vs. pumping tokens,” he wrote in a tweet.
Coinme has appointed its first general counsel. The cryptocurrency cash exchange named Tom Davis, who previously led IBM’s North America Business Unit, to guide the firm.
Sara Castelhano was named chair of P20. The JPMorgan executive was tapped to lead the global payments industry group, which also includes American Express, Discover, Mastercard and The Clearing House.
Pravjit Tiwana joined Gemini. The former Amazon Web Services executive was named chief technology officer of the crypto marketplace.
Coinbase made big moves this week. Nana Murugesan, a former Samsung executive, joined as VP of International and Business Development. It also snagged Thaya Knight, former counsel to SEC Commissioner Elad Roisman, as senior public policy manager.
Michelle Neal, a former LedgerEdge exec, joined the New York Fed. She is slated to start as the head of the Markets Group and a member of the bank’s executive committee in March.
Will Wilkinson joined Block’s TBD as head of Policy. That’s the actual name of the crypto division of Block (formerly Square). He pointed out the irony of working for the founder of Twitter after a tweet got him fired from the Niskanen Center.
Blockchain.com added Tom Horton to its board. The lead director at Walmart joins the crypto startup’s expanding list of advisers. (Fun fact: Blockchain.com director Marcie Vu, the former head of Consumer Internet Banking at Morgan Stanley, was one of two people named “most likely to succeed” at her high school. Bonus points for anyone who knows who the other person was!)
“Crypto Dad” Chris Giancarlo, the former CFTC chair, joined Digital Asset. The blockchain startup added Giancarlo to its board of directors to provide counsel on regulatory developments.
Ryan Wyatt left YouTube for Polygon Technology. The former head of Gaming at YouTube is joining Polygon Studios as CEO. He said he was excited to venture into Web3.
Circle named Sherice Torres chief marketing officer. Torres was chief marketing officer for Meta’s digital wallet product, Novi, before joining Circle.
New York’s BitLicense is now under the control of a business-friendly regulator. Adrienne Harris, who has a reputation of being firm but friendly with businesses, was named superintendent of New York’s Department of Financial Services on Tuesday.
A MESSAGE FROM CLARI
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Lehane on the brain
So where is Chris Lehane going? After Axios reported he was leaving Airbnb for an unnamed crypto fund, I lit up my contacts’ messages trying to figure out where the policy expert was landing.
The obvious choice is Katie Haun’s new fund, going by the placeholder name of KRH Partners. Haun’s star is on the rise: She’s the subject of a new Fortune cover story. The other leading option is Haun’s former employer, a16z, which she raided for policy and communications talent on the way out. One of those hires, Nick Pacilio, responded with a coy, “No comment from me for now!” when asked about Lehane. Margit Wennmachers at a16z didn’t respond to a request for comment, but Lehane is tight with the firm — it was an Airbnb investor and Marc Andreessen helped the company with its local policy fights at Lehane’s behest.
Don’t forget Coinbase, which has its own very active investment arm, Coinbase Ventures, overseen by COO Emilie Choi. Lehane and Choi follow each other on Twitter, and Airbnb and Coinbase are tight in their own way — Coinbase CEO Brian Armstrong worked at Airbnb before leaving to start the crypto exchange.
Here’s one tantalizing clue, which may not amount to anything: I guessed what Lehane’s new email would be at KRH and … the message I sent didn’t bounce.
Whoever lands Lehane will get a fierce but smooth policy operator. Airbnb managed to negotiate peace accords with key cities where it operated without pissing everyone off like Uber did. This is a crucial year for crypto regulation, and it needs a deft hand. Lehane’s got that.
— Owen Thomas
Thanks for reading — see you Friday!