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Bear of the Day: LendingTree, Inc. (TREE)

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Benjamin Rains
·3 min read
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The coronavirus has devastated large swaths of the economy and forced millions of Americans to cut back on non-essential spending and many small businesses to close or go under. This has hurt online loan and insurance aggregation firm LendingTree (TREE), with its revenue down big in both the second and third quarters. And TREE stock fell at the start of the month when it provided weaker-than-projected guidance.

Tough Times

LendingTree enables consumers to browse multiple offers from a network of over 500 partners for financial services that include mortgage loans, auto loans, personal loans, business loans, credit cards, insurance, and more. The company had been consistently growing its top line, as part of the mass digitalization of financial services. But the economic downturn quickly changed things.

TREE’s second quarter revenue fell 34% and its third quarter sales slipped 29%, as consumer borrowing remains subdued given the economic turmoil and uncertainty. Strong growth from its insurance unit and small expansion in its home segments couldn’t offset a 68% decline in LendingTree’s key consumer division (accounted for 50% of sales in Q3 FY19).

The company’s consumer segment includes credit cards, personal loans, small business loans, student loans, auto loans, deposit accounts, and more. Investors should note that this unit did climb by 30% sequentially, which is a positive sign. Nonetheless, LendingTree provided disappointing fourth quarter guidance when it reported its Q3 results at the start of November.

 

 

 

 

 

 

 

 

 

 

 

 

 

Outlook

Moving on, Zacks estimates call for TREE’s fourth quarter sales to fall 18% to $210 million, with Q1 FY21 sales projected to sink 20%. Worse than that, the firm is projected to swing from adjusted earnings of +$1.12 per share in the year-ago period to a loss of -$0.73 a share.

Overall, LendingTree’s fiscal 2020 EPS figure is expected to sink 82% on 19% lower sales. Luckily, the company is projected to bounce back in fiscal 2021. However, its full-year totals are projected come in below its 2019 levels, especially on the bottom end.

 

 

 

 

 

 

 

 

 

 

 

 

Bottom Line

TREE shares are down over 20% in the last month and over 10% in 2020. And it's worth noting that the company announced on November 16 a secondary share offering, which sent its stock price falling even further.

The chart above showcases how dramatically LendingTree’s broader earnings outlook tumbled after it released its third quarter results. The company’s negative revisions activity helps TREE earn a Zacks Rank #5 (Strong Sell) at the moment.

Clearly, a vaccine could help boost the economy and consumer sentiment, which would help LendingTree. But without a dividend to help and the continued uncertainty, it’s likely best to stay away from TREE stock for now.

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