By:
Catherine Strietmann, 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 an online loan marketplace
for consumers seeking loans and other credit-based offerings, using online
tools to help consumers find the best loan for their needs. Lending Tree’s
online marketplace provides consumers with access to product offerings from
different lenders, which include mortgage loans, home equity loans and lines of
credit, credit cards, auto loans, student loans, small business loans, and
other related products.
• TREE has emerged to be
one of the leading marketplaces for online consumer loans, with no end in sight
for the continued growth in the promising FinTech industry. Q1 2017 results
beat expectations, with the company’s consumer and lender platforms both
growing substantially.
• Non-mortgage loans have
surpassed 50% of LendingTree’s loan revenue, providing immense diversification
benefits for the company.
• Competitive efficiency
among marketing channels has driven the growth behind LendingTree’s consumer platform,
with 4.9M MyLendingTree subscribers, as compared to 3.3M in Q4 2016.
Key
points: Being the AIM Fund’s second highest contributor to
return as of 05/05/2017, TREE has proven to be a wise investment with a strong
outlook based on the growing FinTech industry, and strong quarterly performance.
For the fiscal year end 31 December 2016, LendingTree revenues increased 51% to
$384.4M, reflecting an increase in demand for the company’s products and
service due to the favorable and growing market.
Continuing with this
trend, TREE presented strong Q1 2017 results, outperforming with both mortgage
and non-mortgage products. Revenue grew
40% Y/Y, being $132.5M, above the high end of the company’s guidance
($122MM-$126MM). This was driven by high purchase loan volume, as well as high
credit card and home equity performance, with non-mortgage growing 75% Y/Y. The
company is positioned to gain market share in the industry with continued
product offerings, most recently launching an online auto insurance comparison
service in March. The roll-out of products within the non-mortgage segment is
expected to continue.
Although higher interest
rates will stop refinance mortgage demand over the next several years,
LendingTree has a wide product scale and high revenue conversion that will
continue to generate organic profit growth. Non-mortgage loans now exceed more
than 50% of TREE revenue for the first time since the company was founded in
2008, providing great diversification benefits and lessening risk. A large part
of this is due to the acquisition of CompareCards in November 2016, and still
the company continues to grow organically. Additionally, online advertising
spending by large banks has provided strong growth for LendingTree, and
provides an area of business where management expects to expand.
The great momentum for
LendingTree has all necessary opportunities to be sustainable, with new
branches growing and emerging every earnings release. The company has
impressive operating leverage, as well as a brand well known in the
marketplace. As interest rates are expected to rise, the online loan market
will become more competitive, but LendingTree management claims that it is 30%+
more efficient across marketing channels, including paid search, TV, and
display. This sets up the company for continued success in the growingly
competitive environment, being able to direct traffic to their business and
bring more qualified customers to lender partners.
What
has the stock done lately?
Since LendingTree
released its Q1 2017 earnings on April 27, 2017, the company’s stock is up 18%
($125.75-$148.55), trading the higher than ever. Equity researchers are
increasing price targets to around this positive performance, with targets on
average near $160. Drivers behind this growth are deeply rooted in the success
of the FinTech industry, and LendingTree’s ability to gain share in a
competitive market.
Past
Year Performance: In the past 12 months, TREE has increased
122% in value, from $67.14 to $148.75, with a 52 Week High/Low of
$150.95/$64.07. Since the initial pitch of TREE in December 2015 at a price of
$95.73, the company has experienced great upward momentum in the market due to
its ability to effectively grow its consumer base and optimize web marketing.
With revenue growing 40% Y/Y in Q1 2017, as well as an adjusted EBITDA margin
of 18% improved 130 bps Y/Y, TREE continues to beat street estimates.
Source:
FactSet
My
Takeaway
Since the initial pitch
of TREE in December 2015 at a price of $95.73, the stock has nearly reached its
price target of $151.80. However, the Q1 2017 earnings release and the growth
of the FinTech market set TREE to far pass this price target. LendingTree holds
competitive presence among the online loan industry, with platform such as
MyLendingTree that provide a more relationship-driven model for consumers,
having a very high operating margin.
Although interest rate increases will
increase competition for LendingTree, the company has a competitive advantage
with its marketing strategies in the industry. TREE is positioned well for the
coming rate increases, and continues to prove performance for the AIM fund.
