LendingTree, Inc.‘s (TREE short quoteTREE – The company’s continued efforts to diversify its non-mortgage product offering and focus on the consumer segment have driven revenue growth. Strategic acquisitions have also bolstered the financial sector over the years. However, deteriorating operating environment is expected to impact insurance segment growth, while high expenses are likely to impact financials.
TREE has three reportable segments: Home, Consumer, and Insurance. The Company increased revenue by diversifying its non-mortgage product offering, particularly in the consumer segment. In fact, in February 2023, the company launched WinCard, the first branded consumer credit offering.
In addition to the expanded product offering and services, LendingTree has expanded the loan offering to include personal, auto, small business, and student loans. However, the closure of the Ovation credit services business in mid-2023 is expected to reduce consumer segment sales to the mid-teens in 2023. Still, initiatives like My LendingTree and TreeQual should improve cross-selling opportunities with existing customers, thereby increasing profitability.
LendingTree’s Home segment income (consisting of home equity income and mortgage income) has grown over the years. This is due to the company’s focus on improving purchase conversion rates while helping to meet its customers’ demand for home equity loans. Management expects home equity to be a significant contributor to home sales in 2023.
Since 2016, the company has successfully integrated numerous acquisitions, supporting its earnings growth. The company has expanded its lending services and credit card product offerings and strengthened its online lending platform through acquisitions in recent years. In the first quarter of 2022, the company acquired EarnUp, a consumer-centric payments platform.
But while the insurance segment has seen modest growth over the years, the first quarter of 2023 was an exception. Given the deteriorating operating environment, the company expects subdued demand. Management therefore expects sales in the insurance segment to decline in the mid-single-digit range in 2023.
LendingTree suffers from an increasing cost base over the years. Still, this figure declined in the first quarter of 2023 due to various cost control efforts. Although such initiatives can help the company weather the current difficult macroeconomic scenario, the normalization of business activities is likely to result in higher technology and advertising costs. This could have a long-term impact on earnings growth.
As of March 31, 2023, LendingTree’s cash and cash equivalents were $150.1 million and the Company was fully available under its $200 million revolving credit facility. In addition, the company had significant long-term debt of $625.4 million on its balance sheet. Therefore, due to limited cash holdings, inconsistent quarterly performance and a high debt/equity ratio, the company’s capital deployment activities appear unsustainable in the near term.
Shares of this No. 3 Zacks company (Hold) are up 2.1% compared to an 8.9% industry growth over the past six months.
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