LendingClub LC Problem

Part A

A. Choose several peer companies for LendingClub and justify your choice. Choose several valuation multiples and using comparable ratios of peer companies (as we did in Project 2 and discussed in Conferences) and LendingClub financial information from the prospectus, estimate the company’s hypothetical stock price on December 9, 2014. It is required for this question to list your major assumptions and properly reference sources of information that you used in your calculations.

Part B

Using the same peers and industry data, please estimate LendingClub 's WACC. Show all your data used for calculations. Again, please state all your assumptions and sources of information.

Part C

LendingClub went public on December 10, 2014. How do your valuations compare to the company’s IPO price? How do they compare to its first trading day opening and closing prices? If your valuations differ from observed prices, can you briefly forward any possible explanations?

Part D

In April 2010 Norwest Venture Partners X acquired 12,451,360 shares of Series C preferred stock for aggregate consideration of $ $4,879,999. In April 2011 the same fund acquired 3,635,264 shares of Series D preferred stock for aggregate consideration of $ 3,233,022. The stock never paid dividend. At IPO all preferred stock was converted to common shares and in exchange for its preferred shares Norwest received 50,822,020 common shares. If Norwest sold shares at IPO, what its annualized return would be? Did Norwest actually sell at IPO (support your answer by evidence)? If Norwest sold shares at market closing on April 17, what its annualized return would be?

Part E

The terminal period growth rates were estimated such that the intrinsic valuation of the firm's equity would equal the current market capitalization of the firm using the "Goal Seek" function.

A. The following information is for pedagogical purposes only and unlike earlier questions does not deal with real situation. There are rumors that LendingClub is negotiating a three year agreement with WellsFargo, according to which LendingClub will have a right to sell its proprietary trading software to WellsFargo at the beginning of any year in this three-year period. Once LendingClub sells the software, it receives a one-time license fee of $ 250 M, but it cannot serve Wells Fargo clients anymore. The current value of Wells Fargo clients to LendingClub is estimated to be $60 M. Each year this value can go up 10% or down 20% in comparison with the previous year. If the risk-free rate is 3%, how much this agreement is worth to LendingClub? What should the company do over three years? Please provide as many details as possible in your explanations and support them by numbers. (Hint: think about this as an American put option)