During the last trading sessions, share price of LendingTree Inc (TREE) has risen by 40% after recent reports of results of the last quarter (Q2 2015).
The company reported a positive net income of $4.7 million while during the same quarter of the last year it reported a loss. Revenue jumped 139% year over year and 29% from the first quarter of the year.
The second quarter demonstrated a strong performance as it exceeded prior guidance on revenue and adjusted EBITDA. It continues to make measurable progress both operationally and financially in growing the suite of loan-based comparison shopping offerings.
In its mortgage business it is serving 11 of the top mortgage originators, and it continues to make deals with large national and regional banks and despite the recent growth, they expect to accelerate their mortgage business growth rate in the third quarter.
But the mortgage business is not the only that is giving positive results; talking about its non-mortgage products, Douglas Lebda, chairman, CEO and founder of the company, said :
"I am even more thrilled with our progress there. In personal loans, we continue to grow volume month over month with substantial increases from page search, SEO, offline and CRM. We have been investing heavily in growing revenue for this product and cross-selling personal loans to our existing customer base through email and My LendingTree. We remain acutely focused on improving conversion rates from leads to closed loans.
"In the second quarter we facilitated an estimated $375 million in personal loan originations. And our network of personal loan lenders, now at 22 lenders, continues to grow, providing expanded coverage for consumers across the credit spectrum."
For Q3, it expects revenue to grow by 45% to 50% and adjusted EBITDA to have a growth of 59% to 67%.
For full-year 2015 they expect revenue to grow by 34-37% and adjusted EBITDA to grow by 60-65%
"We couldn't be more pleased with this quarter's results," added Doug Lebda. "The online lending market continues to expand, and LendingTree is positioned perfectly to capture an increased share of a burgeoning market. With another quarter of continued growth, we're especially pleased to see our non-mortgage revenue more than double year over year and grow 29% over the prior quarter. Our continued business strength in both mortgage and non-mortgage categories gives us confidence to increase our guidance for the remainder of the year."
If we compare the company to its main competitor that is BankRate Inc (RATE) we see that with half employees and 1/5 of revenue, TREE has a a gross margin that doubles the one of its competitor, and an EPS that is 1.83 (RATE has an EPS of 0.06). The main reason of this difference is, as stated before, TREE’s business is mainly focused on the online market place to lend mortgages (lendingtree.com) that rely on finding new customers through online advertising and search engines that eats up to 70% of TREE’s revenue.
About the company
LendingTree Inc operates as a branded performance marketer. The company serves as an ally to consumers who are looking to comparison-shop and make informed purchase decisions for loans and other important transactions. It provides consumers with an array of information and tools free of charge, conveniently located on its various websites. In addition, it provides consumers with access to offers from multiple providers that can compete for their business, usually through a single inquiry form. The company is the owner of several brands and businesses that provide information, tools, advice, products and services for critical transactions in consumers' lives. Its family of brands includes: LendingTree, GetSmart, LendingTree EducationSM, LendingTree AutosSM, LendingTree Home ProsSM and InsuranceTree.
The company has a strong financial situation rated 7/10 with cash to debt rated as No Debts and a equity to asset ratio of 0.69 (ranked higher than 97% of other companies in the Global Specialty Finance industry). The profitability and growth is rated 5 out of 10 with positive returns; ROE of 24.05% is ranked higher than 95% of company’s competitors and ROA of 14.44% is ranked higher than 99% of other companies in the same industry that has an average ROA of 0.84. All these ratios are at best levels of company’s history.
Price, fair value
The stock is trading at $117 with a very high P/E(ttm) ratio of 61.73 and the price has risen by 1473% over the last 10 years and by 332% during the last 52 weeks and is now -1.44% from its 52-week high and +358% from its 52-week low.
The stock is largely overpriced. The DCF calculator gives a fair value of $13 so the stock is overpriced by 758%.
The EPS of the company is unstable. It bounced from 0.61 in 2005, to -21.59 in December 2008, to 4.36 in 2012 while the price is all rising since the last 10 years. For these reasons the P/E ratio is very high right now, and many investors have doubts about the company since 90% of its business is focused on mortgages and in that area there are hundreds of other players but unlike them, TREE has a very aggressive marketing campaign (as can be read from one of the many websites with reviews about the company’s service) that over the long-term may bring back negative results. More than this, lenders can anytime promote and advertise their mortgages directly to consumers, without the need of LendingTree services.
Hedge fund and gurus
The main hedge fund holding shares of TREE is Jim Simons (Trades, Portfolio) with 2.58% of outstanding shares, followed by Murray Stahl (Trades, Portfolio) with 0.09% and Mario Gabelli (Trades, Portfolio) with 0.04%.
