By:
Sean Dole, 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.
Summary
• LendingTree, Inc. (NASDAQ: TREE) operates online marketplaces to
match consumers with loan, credit card, and deposit products throughout the
United States. Partnering with top financial firms, TREE attempts to match
customers with the best financial products to fit their needs.
• Over the past few
years, TREE has moved away from relying on mortgage loans to produce revenue
and now sees strong growth from non-mortgage products.
• Acquisitions of diverse
companies in the personal finance industry have been key for TREE while
diversifying their product offerings.
• The company’s My
LendingTree platform looks to build stronger relationships for customers and is
still a main driver of the company’s growth.
• The online financial
services market has tremendous growth prospects and will give TREE a chance to capitalize
on this expansion.
Key
points:
When LendingTree was
pitched for the AIM portfolio in 2015, mortgage products made up 65% of their
revenue. In the third quarter of 2019, mortgage products made up 25% of
revenue. LendingTree’s growth has been predominantly driven by this expansion in
their non-mortgage products (auto loans, credit cards, deposit accounts, etc.).
In fact, their Q3 earnings showed that revenue from non-mortgage product was
75% higher than one year ago.
To expand in this
non-mortgage market, LendingTree took on a relatively steady acquisition campaign
since 2015. In 2018, they acquired Ovation (a leading provider of credit
services), Student Loan Hero (a website that helps student loan borrowers
manage their debt), and QuoteWizard (one of the largest insurance comparison
online marketplaces). In 2019, TREE acquired Value Holding which offers
consumers analysis on various aspects of personal finance. Through these
acquisitions, LendingTree has diversified their own portfolio and produced
tremendous revenue growth. Additionally, management hopes to use these
acquisitions to improve their My LendingTree app.
The My LendingTree
platform is one of the main ways the company aims to build stronger
relationships with customers. My LendingTree provides free credit scores and
credit analysis to consumers with the intent of pairing them with loans or
other products. This app was a key driver for the company when it was pitched
in 2015, and management continues to focus on its improvement. Recently, they
more aggressively advertised the My LendingTree app and saw a 45% jump in app
installations in the third quarter. Eventually, the company wants this app to
be a one stop shop for all personal finance needs, providing an attractive
opportunity for continued growth over the $24 million it now contributes to
revenue.
In the broader market, consumers
are demanding more online personal finance services, and companies are
noticing. Google recently announced the launch of their own deposit services
and Apple partnered with Goldman Sachs to offer comprehensive credit card
services right from your phone. Obviously, these big tech companies are
projecting significant growth for digital personal finance products, and LendingTree
provides advertising for this exact purpose. Right now, management estimates
the financial services ad market is a $29 billion market with TREE comprising
$1.1 billion. LendingTree can not only gain a greater share of their current
market but has a great opportunity to take advantage of the entire expansion in
online financial services advertising.
What
has the stock done lately?
In their 2019 Q2 earnings
announcement, LendingTree reported a 60% increase in expenses from a year prior
and decreased EBITDA and variable marketing margin guidance for the rest of the
year. This report led to a quick 16% decrease in the stock price. Looking to
bounce back in Q3, TREE announced strong continued growth in total revenues and
revenues from their non-mortgage divisions. Even though they ended up missing earnings
expectations, this strong growth led to a 14% jump in the stock price.
Source:
FactSet
Past
Year Performance:
Over
the past 52 weeks, LendingTree’s stock increased 61.94% alongside sales growth
of 57.62%. The stock now trades at quite a premium with an LTM Price/Book Value
of 10.37 and an LTM EV/EBITDA of 31.40. Even though overall growth has been
strong, the stock has been somewhat turbulent with a beta of 1.48 over the past
year. However, a consistent increase in revenue and diversification over the past
year bodes well for the company’s future earnings.
Source:
FactSet
My
Takeaway
Money does seem to grow
on this TREE. Since it was added to the portfolio in 2015, the stock smashed
through its price target and has now increased 287%. However, because of their
consistent growth numbers and expansion of the My LendingTree platform, I still
see room for the company to grow. Demand for products where consumers can have
an easy to understand and comprehensive view of their finances right from their
phone or computer is set to keep increasing. Because LendingTree is in a good
position to capitalize on this trend, it deserves a hold rating for the AIM
fund.
