Many of our readers know, we’ve been working on ways to improve our return on equity to pay for graduate school. We were considering putting a chuck of cash into prosper.com, but decided against it for a number of reasons.
Having a bit of money in the site, we still spend a fair amount of time dealing with prosper related business, including writing about the company, managing our loans, and corresponding with other bloggers about prosper.
Most recently I heard back from Prosper’s corporate staff, and based on my correspondence with them, I’ve concluded the company is NOT currently profitable.
My reasoning is as a follows:
Income: From what I’ve been told, Prosper has brokered about 19 million worth of loans. Now, I assume that Prosper’s primary income stream from loan origination, brokering fees and miscellaneous (Click here for their fee info), is about 2.00%. On a basis of 19 million, their total before tax income would be $380,000.
Expenses: Now, Prosper has 7 management staff, probably a techie or two, and is looking to hire another tech. Also, they have a call center in India. Plus, the company has to cover over head and office space. All of this costs money.
Assume that each of these seven management staff earn a salary of 50,000 annually (that’s a LOW estimate for San Francisco) and that the call center contract is probably an additional $40,000, they you have a rough total of $540,000 in staff salaries (10 staff at 50k, plus 40k for call center). If you assume that leases and overhead is an additional $20,000 annually, then prospers total expenses, minimum, are: $560,000 (extremely conservative considering start up costs).
Expenses greater than income: Last time I checked $560,000 was more than $380,000. In other words, It looks to me like proper is cash flow negative, e.g. they are LOOSING money. From our estimates, which are conservative, Prosper would be starting to make a profit once they reach the $30M mark in loans.
This is not unexpected, after all, they are a start up. However, it does indicate that Prosper’s long term viability is questionable. For those of you who are considering putting a large sum of money into the service, you might consider taking a more limited position, or waiting until the figures become somewhat more favorable.
Best of luck and have a great day!
-James and Miel
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