IAC/Interactive Discusses the Mortgage Lending Environment

| About: IAC/InterActiveCorp (IAC)

Excerpt from the transcript of IAC/Interactive Corp's (IACI) conference call; CFO Tom McInerney is speaking:

In lending, we continue to operate in an environment significantly less attractive from mortgage refinancing and home purchases in the prior year period. Close-rates across all home loan products, especially refinance, were lower in Q3, leading to year-over-year revenue declines. As you know, we have cut planned marketing expenditures in this business to strike the correct balance between gaining share and improving margins in the back half of the year. Although we did come in a little shy of our hopes on the revenue side in Q3, it cost us 4% less to acquire a new customer versus last year and 11% less versus Q2, leading to a 400 basis point increase in sequential margins. The fourth quarter in lending is an easier comp, and we look to grow profits again in Q4.

And later from COO Doug Lebda:

In lending and real estate, we are obviously fighting a well-known macro environment. The mortgage market is down 29% in Q3 versus last year according to the Mortgage Bankers Association, with a 43% decline in refinance. In the face of these headwinds, the team at LendingTree has put in place a number of initiatives that are gaining traction.

These include continued focus on the purchased mortgage business. At LendingTree Loans, the number of purchased, dedicated loan officers has doubled year-over-year. Purchased closings at LendingTree Loans are up 39% year-over-year in a market that’s down 14%. While we clearly need more progress, including new initiatives to step change the success of purchased mortgages, both on the network and at LendingTree Loans.

We have made very solid success in online marketing. A year ago, LendingTree was encountering new competition who were frankly better at online marketing than we were. We put in better technology, and better people and gave this important area significant focus. One year later we are beginning to see the fruit of that hard work. In spite of seeing costs of online media rising dramatically in 2006 and conversion rates – and thus revenue – falling, online advertising partners, where we couldn’t advertise profitably a year ago are now making money.

In addition, Get Smart, our lending brand geared towards consumers who want a shorter qualification form, improved its cost of customer acquisition by over 30% year-over-year. This is translating into online share growth. Through internal tracking and third-party data, we track consumer leads generated through LendingTree and all of our competition. A year ago, LendingTree and Get Smart combined to generate about 39% of all of the online qualification forms, and that number is now north of 45%.

Lastly, we are continuing to innovate in our forms and on our website. The TOF has been streamlined, that is the qualification form, through a continuous program of testing and experimentation that has yielded great results. For example, one recent change in the refinance form yielded a 15% improvement in that form’s conversion rate.

Additionally, LendingTree has now launched an integrated short form business, which is generating incremental loan requests every month, and hopefully will be a significant driver to contribution profitability next year.

Obviously, we wish the picture were better at LendingTree, but we firmly believe we are growing share, doing better than most players in the mortgage market, and grew profit margins sequentially by vigorously managing our discretionary spending.

Excerpted from the full transcript of the IACI conference call.