The San Francisco-based company's shares continued a downward slide, falling 4.9% to $4.43 on Tuesday. The stock plummeted more than 30% on Monday after the company announced that CEO Renaud Laplanche would resign following an internal review of LendingClub's sale of $22 million in higher-risk loans to a single investor, contrary to the funder's instructions.
LendingClub, which uses a digital platform to connect borrowers with investors for so-called peer-to-peer lending, said it subsequently repurchased the loans at face value and sold them to another investor.
Pacific Crest Securities analyst Josh Beck and Ankit Kapoor lowered their rating of the company to sector weight, the equivalent of neutral, after cutting its earnings estimates for the second time in a week and trimming its price target due to credit and funding concerns. The analysts cited the "abrupt CEO resignation and a sharp sequential decline in certain funding sources."
The analysts said the CEO's departure tempers their confidence in the company's business model as it is "unclear if the brand will take a significant reputation hit with investor funding sources." In addition, federal regulations may not be as manageable as once thought.
"The evidence of weak controls leaves us with a more cautious bias on the impact of increased regulatory scrutiny as well," Beck and Kapoor wrote.
Although the company's first-quarter results weren't bad, with loan-origination growth of 7% outpacing 4% gains at Square (SQ) - Get Report and a drop of 15% at Prosper, LendingClub's decision not to offer a forecast for investors suggests a need for caution, the analysts said.
LendingClub reported operating revenue of $151.3 million and adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, of $25.2 million, vs. expectations of $148.1 million and $27.0 million. The company was founded in 2006.