Sunday, February 11, 2018

A current AIM Program Small Cap Equity Holding: LendingTree, Inc. (TREE) by: John Wagner. "Does Money Grow on TREE(s)?"

LendingTree, Inc. (TREE, $370.60): “Does Money Grow on TREE(s)?”

By: John Wagner, AIM student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


LendingTree, Inc. (NASDAQ:TREE) is the leading online loan marketplace connecting  consumers to over 450 lenders that offer student, personal, mortgage, automobile and other related types of loans. 

• TREE is continuously developing their MyLendingTree platform and investing in technology to conquer the digital gap in the mortgage industry, while working with lenders to provide consumers with training, information, and a better overall customer experience.  

 LendingTree has diversified their mortgage/non-mortgage revenue mix to about 45%/55% v. 65%/35% just two years ago. This diversification should continue to contribute to their 5-yr revenue CAGR of  41%.

• With a TAM worth over $19 billion and only a 30% market share, TREE looks to continue expansion through acquisitions and development of non-mortgage segments.

Key points: Lending Tree is back on track following its spin out in 2008. Following their decline, large amounts of M&A and internal development has occurred, creating over 50% growth since 2015. Management has placed emphasis on not only diversified product portfolio but conforming to needs of millennials, who are growing faster vs. peers. These millennials, who are technology dependent, will make use of all TREE has to offer, not only loan related, but also for filing taxes.

In it’s most recent M&A deal, LendingTree acquired Roostify, a leader in the real estate lending marketplace. Nikul Patel, Chief Strategy Officer of TREE, proposed that this acquisition will not only make matching lenders with consumers more seamless, but allows for loans to be completely digital in this segment of their business. Combining these two platforms allows for loans to be found, filed, and closed completely digitally. In essence, this new acquisition will diversify their product portfolio as well as make loans simple, paperless, and fitting for millions of people, especially millennials.

With that being said, it will be interesting to see how management reacts to the current mortgage industry, and home sales specifically. According to the National Association of Realtors, the number of homes on the market have hit an all time low, meaning consumer mortgage demand could be adversely impacted. Management claims that in their current product portfolio, a decline in purchase demand will be recouped with refinancing; that they are not worried about the current state of the mortgage industry.

Also to note, Purcell Julie & Lefkowitz LLP, a law firm committed to representing shareholders , has launched an investigation against LendingTree, Inc. for its potential breach of fiduciary duty. Pending results of the investigation, shareholder wealth could be largely impacted if it is found that TREE did not reach their fiduciary responsibility. There has been no more information released to this point.

What has the stock done lately?

The stock has just recently dropped ~10% from it’s 52 week high, $404.40, to now $362.25. This dip occurred on January 23rd  primarily as a result of overnight trading volatility. Since this dip, TREE is up 2.3%, to a current price of $370.60. 4Q-17 earnings are to be released February 22. 

Past Year Performance: Following four major acquisitions in 2017, as well as continuous development to its MyLendingTree app and platform, LendingTree, Inc.’s stock is up 227% this year. TREE has also hit its all time high stock price of about ~$404, however, it is now currently trading around $362. While TREE has beat consensus estimates twice in 2017, 4Q earnings could be very indicative of their position in the current market.

 Source: FactSet

My Takeaway

Management is a key factor in the continued success of LendingTree, Inc. Founder, Chairman, and CEO Doug Lebda has been with TREE since its IPO in 2000. After a series of ups and downs, it has ultimately prevailed on top. With continued technological development and expansion across both its mortgage and non-mortgage segments, there is potential for the stock to continue its incline. While issues arise regarding home sales, polls note 67% of people (79% of millennials) are optimistic about their personal financing improving this coming year. With millennials continuing to apply for school loans, technological upgrades, and continued expansion in non-mortgage segments, TREE has could have a bright future. However, pending the results of its current lawsuit and outlook on its mortgage segment, I am recommending a hold rating for LendingTree, Inc.

Source: Yahoo Finance