TREE

Investment Analysis Clubs Saul’s Investing Discussions
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Hi

I have been a TMF member for about 2 years after my good friend (who has been a TMF member for more than 10 years introduced it to me), and I have just been following the SA stocks and been monitoring them. I am a long term investor (which initially I wasnt, but am after I got convinced following his advice, and reading articles)

I have recently started to read through the community boards/articles, Knowledge base from Saul, and much more, and what a wealth of information the community sharing has provided. I am amazed on the analysis and discussions folks have with data and opinions.

This is my first post to the community, so please forgive me for being naive.

I have been following this stock (TREE) for a while now, and with great growth. I havent seen this doing the rounds actively on any board in specific, so wanted to gather of what folks think of this stock long term (5-10 years or even more) like a typical TMF stock.

Ticker: TREE
It seems to be on the disruptive side of things … whats your take? [I did occasionally read through their quarterly reports and all]

From google finance
“LendingTree, Inc. (LendingTree) is engaged in operating an online loan marketplace for consumers seeking loans and other credit-based offerings. The Company’s online marketplace provides consumers with access to product offerings from various lenders, which it refers to as Network Lenders, including mortgage loans, home equity loans and lines of credit, reverse mortgage loans, auto loans, credit cards, personal loans, student loans, small business loans and other related offerings. In addition, the Company offers tools and resources, including free credit scores that facilitate comparison shopping for these loans and other credit-based offerings. The Company offers its products in categories, including mortgage products and non-mortgage products. Its mortgage products category includes its purchase and refinance products. Its non-mortgage products include lending products and other products.”

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LendingTree (TREE), interesting find! The first thing I check about financial companies is the credit risk. I won’t invest in credit risk. LendingTree is strictly a marketplace with no credit risk!

Marketplaces are at the core of the economy, if there is no trade there is no economy. The question is whether LendingTree can become and remain the go-to marketplace for credit. The software is not all that difficult to replicate, there are dozens of stock-market exchanges. The business moat is in the network effect, once a network has enough buyers and sellers it is difficult for new exchanges to get a decent share of the business. I’ve not had the time to explore this issue which is core to investing in TREE. The revenue growth of around 50% is a positive indicator.

I love companies that can grow net and operating earnings faster than revenue as was the case with LendingTree in 2016


**Year                                   12/31/16  12/31/15  Change**
Total Revenue                           384,402   254,216   51.2%
Gross Profit                            370,638   244,846   51.4%
Operating Income or Loss                 52,112    28,514   82.8%
Income Before Tax                        51,574    28,343   82.0%
**Income Tax Expense                       20,366   -22,973 -188.7%**
Net Income Applicable To Common Shares   27,494    48,047  -42.8%

Since 2015 was their first profitable year, they used up all their tax credits which is the reason for the drop in Net Income in 2016. Dilution seems to be on the order of 6.5%, bears watching.

http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=123…

I’ve added TREE to my wish list. Thanks!

Denny Schlesinger

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https://seekingalpha.com/article/4117737-lendingtrees-tree-c…
a wow conference call, Lending Tree is growing like Topsy.

we’ve seen a 60% year-over-year improvement in engagement through the platform and now have over 6.5 million users on My LendingTree, which represents an increase of over 175% compared to the same time last year.

deliver EBITDA growth north of 50% in every quarter since 2014

now have 57 lenders live on the digital mortgage product, with several lenders in the pipeline.

all of our marketplaces are performing exceptionally well, enabling us to continue to diversify, reinvest in the business and focus on executing our strategic plan.
This boils down to the flywheel effect.

we’ve seen the timeframe between initial shopping for a mortgage to the loan close decline over the past year. It’s a median of 7 days,

flywheel effect

http://strategictoolkits.com/strategic-concepts/flywheel/

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I think TREE is one worth looking into. Only flags I see are:

  • They made a recent acquisition or two, so I don’t think all growth is organic.

  • I would also investigate the TAM. If this is truly disrupting mortgage loans and such, it’s probably huge…but are there things they are legally not allowed to tackle given their model? They’re not a bank, after all - only a facilitator between lender and borrower. What’s their secret sauce? Why can’t someone do what they do better?

  • I used to own a small position in Lending Club (LC), which has not done well. Their revenue has stagnated and they aren’t profitable. It’s my understanding that they and TREE are competitors, but judging by the gross margins (close to 100% for TREE and barely 50% for LC), TREE has a much more asset-light business, which is promising.

Please let us know what you find.

Bear

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Why can’t someone do what they do better?

I answered that up above"

“The question is whether LendingTree can become and remain the go-to marketplace for credit. The software is not all that difficult to replicate, there are dozens of stock-market exchanges. The business moat is in the network effect, once a network has enough buyers and sellers it is difficult for new exchanges to get a decent share of the business.”

It’s my understanding that they and TREE are competitors,

Not really, peer to peer lending is peanuts compared to the mortgage market which is not all that LendingTree does. Yahoo has a much more comprehensive profile:

Description

LendingTree, Inc., through its subsidiary, LendingTree, LLC, operates an online loan marketplace for consumers seeking loans and other credit-based offerings in the United States. The company offers tools and resources, including free credit scores that facilitate comparison shopping for these loans and other credit-based offerings. Its mortgage products comprise purchase and refinance products. The company also provides information, tools, and access to various conditional loan offers for non-mortgage products, including auto loans, credit cards, home equity loans, personal loans, reverse mortgages, small business loans, and student loans. In addition, it offers information, tools, and access to other products, including credit repair, through which consumers obtain assistance improving their credit profiles; debt relief services, through which consumers obtain assistance negotiating existing loans; and home improvement services, through which consumers have the opportunity to research and find home improvement professional services. Further, the company provides personal credit data, through which consumers gain insights into how prospective lenders and other third parties view their credit profiles; real estate brokerage services, through which consumers are matched with local realtors who assist them in their home purchase or sale efforts; and various consumer insurance products, including home and automobile, through which consumers are matched with insurance lead aggregators to obtain insurance offers. Additionally, it operates CompareCards, an online source for side-by-side credit card comparison shopping; and SimpleTuition, an online marketing platform for student loans. The company was formerly known as Tree.com, Inc. and changed its name to LendingTree, Inc. in January 2015. LendingTree, Inc. was founded in 1996 and is headquartered in Charlotte, North Carolina.

https://finance.yahoo.com/quote/TREE/profile?p=TREE

Denny Schlesinger

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It may be worth testing out lending tree yourself and seeing what you think about the interface. I have tried it twice, when I bought our first and second houses and can say that neither time was I given a choice of lenders despite having excellent credit. I soured on it after that experience though I know it has been favored by the MF for many years.

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Yeh - I sold out of LC recently banking my profit. There were company specific reasons but also some sector specific reasons. The key sector specific risks were:

  • rising interest rates hurting the lower quality lending first
  • entry into P2P lending from finance corps like Goldman etc.
    Ant