2022 hasn’t been a great year for stock market investors. Since the start of the year, the S&P 500 has lost about 15.8%.
Selling is a normal part of proper market functioning and should be expected by investors. One positive aspect of sell-offs is that they create buying opportunities in fast-growing companies. Two rapidly growing fintechs caught up in the wave of selling are LendingClub (LC -1.06%) and Tradeweb Markets (TW 1.16%). Let’s find out a bit more about these two fintechs.
LendingClub was founded in 2006 with the goal of bringing personal installment loans into the digital age through its peer-to-peer lending platform.
In recent years, the company has made a hard pivot, shutting down the peer-to-peer lending platform and making loans itself while acquiring a banking charter to hold a portion of these loans. LendingClub’s strategy of holding more loans on its books is three times more profitable in the long run, according to its CEO, Scott Sanborn.
The company focuses on holding about 15% to 25% of the highest quality loans that it makes. These loans are almost all prime loans or loans with a FICO score of 670 and up. By holding on to high-quality loans, LendingClub grows its recurring revenue through servicing those loans. This move could also benefit the fintech as interest rates continue rising, increasing the cost of borrowing for consumers.
Holding loans on its books has already paid off for LendingClub in recent quarters. In the first quarter, LendingClub saw revenue increase 10% from the fourth quarter and double from the first quarter of last year. It also put up a stellar net income of $41 million following a $47 million loss last year.
As the year progresses, LendingClub expects strong earnings to continue. During its earnings call, management raised its second-quarter revenue forecast to a range of $295 million to $305 million — growth of 44% to 49% from last year. It also projects a net income of $40 million to $45 million in the quarter, up 327% to 380% from last year.
Despite its growing business and rising earnings guidance, LendingClub still trades at a price-to-earnings ratio (P/E) of just 13.7 and a forward P/E ratio of 9. It has real potential to be a stellar stock to buy and hold over the next decade.
2. Tradeweb Markets
Tradeweb Markets is a trading platform used by the big players on Wall Street. Its customers include hedge funds, central banks, and wholesale traders like market makers.
What Tradeweb has done well is bringing markets into the digital era. You may think that most things have been digitized at this point, but that’s not true for some markets. For example, long-term swaps markets are only 30% electronified, according to Tradeweb CEO Billy Hult. Modernizing trading across assets, including U.S. Treasuries, corporate debt, and other high-level markets, is where Tradeweb shines.
Tradeweb has taken an increasing share of the markets it serves in recent years. For example, since 2016, Tradeweb’s share of the U.S. Treasuries market has grown from 7.5% to 19.6% last year. The company is also increasing its share of the corporate debt market and is also working on increasing its equities-trading market share.
Volatility in global markets benefited Tradeweb in its recent first-quarter earnings. The company saw total revenue grow 14% to $311 million from last year, while net income increased 22% to $97 million.
Growth came as the company set a record with total trading volume on its platform. The company averaged a $1 trillion average daily volume, which helped power record quarterly revenue. Growth was strong across its different asset classes, with revenue from rates, credit, and equities up 14%, 18%, and 46%, respectively, from last year.
While Tradeweb put up stellar earnings in the quarter, the stock was beaten up along with the rest of the market. Since its earnings announcement on April 28, Tradeweb stock has dropped 22%.
With a P/E ratio of 52, Tradeweb stock is still relatively expensive, but it is cheaper than it has been since early 2020. It also trades at a forward P/E ratio of 32.
Given Tradeweb’s growth, the stock could be a solid value for longer-term investors at its current prices.