Wednesday, November 11, 2020

A Small Cap Equity holding: Lending Tree, Inc. (TREE, $370.77): “LendingTree is Where Money Does Grow on Tree’s” by: Andriy Tykhonov, AIM Student at Marquette University

  Lending Tree, Inc. (TREE, $370.77): “LendingTree is Where Money Does Grow on Tree’s”

By: Andriy Tykhonov, 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.


• Lending Tree, Inc. (NASDAQ:TREE) operates through an online loan marketplace serving consumers seeking loans and other credit-based offerings. The company has four business segments: Home, Consumer, Insurance, and Other. Lending Tree was founded in April 2008 and is headquartered in Charlotte, NC. 

• TREE has increased insurance revenue grew 24% from $74.8 million in the 3rd Quarter of 2019 to $92.5 million in 2020, turning 23% of Insurance segment profit over the same period.  

• During the 3rd Quarter of 2020, around 500,000 new consumers have signed up for My LendingTree, showing a favorable trend for growth.

• TREE is benefiting from diversification of their business, during 2020 they have generated more than $50 million of adjusted EBITDA in spite that the revenues in credit cards, personal loans, and small business segments have been diminishing.

• TREE has launched a series of new features on its platform such as connect bank accounts to the My LendingTree app, cash flow analysis, budget tracker, monthly spending, transaction history, and linked accounts summary. These new features help consumers understand their financial lives to make smarter financial decisions.

Key points: The COVID-19 pandemic has disturbed the regular operations of Lending Tree during the 2nd and 3rd Quarters of 2020. Specifically, the consumer segment (49% of revenue) that includes products such as credit cards, personal loans, small business loans, student loans, auto loans, and other credit products. Year to year the segment revenue and profits declined by 68% and 67% respectively. The other segment generates revenue from the resale of online advertising space and home improvement referrals. This segment (2% of revenue) revenue declined 92% year over year and did not generate any profits. Lending Tree capitalized early on by diversifying its business which proved successful throughout the pandemic. Their insurance and home segments have been growing. During the 2nd and 3rd Quarters of 2020 mortgage applications for suburban homes surged due to consumers trying to escape the coronavirus pandemic by selling in the city and buying in the country. The insurance segment benefited from Americans panic buying life insurance due to the COVID-19 pandemic. 

Lending Tree plans to integrate its insurance segment into the My LendingTree platform. Currently, they provide alerts about insurance products that are not personalized, mostly based on the consumer's location. Going forward, if the customer's driver record changed, Lending Tree will provide exclusive offers through different auto insurance carriers. In the long run, this should increase Lending Tree’s revenue in the insurance segment. 

What has the stock done lately?

In the past month, Lending Tree’s stock price declined by 6.1% from $327.34 to $306.61. Throughout the month the stock has been volatile with a high of $348.78 on November 4th and a low of $292.41 on November 6th. This decline was caused after their 3rd Quarter earnings release which underperformed the street’s estimates for the quarter. Their competitors such as JPMorgan Chase & Co. and Capital One Financial Corporation have been outperforming Lending Tree with their price rising 15.14% and 8.51%, respectively. 

Past Year Performance: Lending Tree has decreased in value by 15.74% over the past year. Their 52-week range is currently at a low of $135.72 and a high of $378.08. They reached their lowest price on April 3rd following a similar trend to the market which was caused by the COVID-19 pandemic. Lending Tree is currently underperforming compared to the Russel 2000 which has grown by 8.64% in the past year. 

Source: FactSet

My Takeaway

Lending Tree stock price has recently slumped due to underperformance in the 3rd Quarter. Management is positive that with recent growth in the home and insurance segment they will be able to diversify the revenue stream. The introduction of new features on the My LendingTree platform and integration of insurance products into the platform will increase revenue and grow their customer base. The past year's performance compared to its competitors and the Russell 2000 has been underwhelming with a decrease in value by 15.74%. The reason for lower revenues has been mostly due to the COVID-19 pandemic. With the recent news about the 90% effectiveness of the COVID-19 vaccine from Pfizer, there are hopes the economy will return to pre-pandemic stability, therefore the recommendation is hold.  

Source: FactSet