LendingTree (TREE) Benefits From Growth Efforts Amid High Costs
LendingTree, Inc.’s TREE continued efforts to diversify non-mortgage product offerings and focus on the Consumer segment have fueled its revenue growth. Strategic acquisitions over the years have also been supporting financials. However, the worsening of the operating backdrop is expected to impact the Insurance segment’s growth while high costs are likely to affect financials.
TREE has three reportable segments namely Home, Consumer and Insurance. The company has been boosting revenues by diversifying its non-mortgage product offerings, particularly in the Consumer segment. In fact, it launched WinCard in February 2023, which is its first branded consumer credit offering.
Apart from increased product offerings and services, LendingTree has widened loan offerings to personal, auto, small business and student loans. However, the closure of the Ovation credit services business in mid-2023 is expected to reduce the Consumer segment’s revenues to the mid-teens level in 2023. Nonetheless, initiatives including My LendingTree and TreeQual are likely to improve cross-selling opportunities with existing customers, thus, driving profitability.
LendingTree’s Home segment’s revenues (consisting of Home Equity revenues and mortgage revenues) have been rising over the years. This is a result of the company’s focus on improving purchase conversion rates while assisting in meeting its customers’ demands for home equity loans. Management expects that Home Equity will contribute majorly to Home revenues in 2023.
Since 2016, the company has successfully integrated many buyouts, supporting its bottom-line growth. The company enhanced its credit services and credit card product offerings as well as strengthened its online lending platform through acquisitions in the past few years. In first-quarter 2022, it acquired EarnUp, a consumer-facing payments platform.
However, despite the Insurance segment recording moderate growth over the years, the first quarter of 2023 was an exception. Given the worsening operating backdrop, the company expects subdued demand. Hence, per the management, the Insurance segment’s revenues are to be down by mid-single digits in 2023.
LendingTree is affected by its mounting cost base over the years. Nonetheless, the same declined in first-quarter 2023 on various cost control efforts. Although such initiatives may help the company navigate the current challenging macroeconomic scenario, the normalization of business activities will likely increase technology and advertisement expenses. This might affect bottom-line growth in the long term.
As of Mar 31, 2023, LendingTree’s cash and cash equivalents were $150.1 million and it had full availability under its $200 million revolving credit facility. Further, it had significant long-term debt of $625.4 million on its balance sheet. Hence, with the limited cash levels, inconsistent quarterly performance and a high debt/equity ratio, the company’s capital deployment activities seem unsustainable in the near term.
Shares of this Zacks Rank #3 (Hold) company have risen 2.1% compared with its industry’s 8.9% growth over the past six months.
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