No one was expecting Prosper to report a stellar second quarter. The marketplace lender announced plans to reduce its head count by 28% in May, leading to 171 layoffs. Rival and former industry leader Lending Club, also in the business of online consumer loans, has similarly been engaged in layoffs (12% of staff, or 179 employees) while conducting damage control after the abrupt firing of founder and CEO Renaud Laplanche this past spring.
But Prosper’s quarterly earnings report, issued yesterday, confirmed that marketplace lending has hit a major speed bump. Prosper’s originations last quarter dropped by 56% to $445 million, while its net losses doubled from $17.5 million to $35 million.
A number of forces have conspired to create new challenges for San Francisco-based Prosper and its peers. Investors are skittish, following Lending Club’s abrupt decline. Competition remains fierce. And lenders are raising rates and underwriting standards, following higher than expected rates of default.
To restart its engines, Prosper needs to find investors who want to buy its loans. According to the Wall Street Journal, the company is in talks with investment firms over a two-year deal worth $5 billion.