LendingTree: Investor Day Outlines The Case For A Post-Pandemic Bounce Back

Feb. 20, 2022 3:07 AM ETLendingTree, Inc. (TREE)7 Comments3 Likes


  • LendingTree's updated guidance numbers offered plenty of positives, as the company looks set to navigate near-term headwinds unscathed.
  • Backed by a robust product pipeline, the longer-term goal to be a one-stop-shop also remains intact.
  • Coupled with capital allocation optionality, LendingTree shares offer compelling value at these levels.

Man using calculator

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LendingTree's (NASDAQ:TREE) latest investor day event provided investors much reason for optimism despite industry-wide headwinds in Home and Insurance, as positive proof points like the upbeat profit guidance led by Consumer as well as new product launches support the case for TREE's P&L turning the corner in fiscal 2022. Looking ahead, TREE remains well-positioned to navigate any headwinds from pending rate hikes on the back of its diversified platform, flexible expense structure, and opportunistic management team. And with incremental revenue drivers like My LendingTree set to kick in as well. I see plenty of scope for multiple expansion over time.

Reinstated Guidance Offers Improved Visibility, Paves the Way for More Beats/Raises

While there was little surprise in the headline guidance numbers or commentary, TREE looks well-positioned on the back of its ability to innovate and drive growth over the next few years. To recap, management has guided to TREE, delivering consistent double-digit % organic revenue growth over the medium term. This will be accompanied by a variable marketing margin of $460 million (implying a 17%-24% growth range), as well as an adjusted EBITDA of $170 million (19%-34% growth range). Additionally, TREE also offered welcome clarity around the segment growth and profit margin assumptions baked into the full-year guidance, highlighting the potential for an upside surprise ahead.

LendingTree 2022 Guidance


Source: LendingTree Investor Day Presentation Slides

Given the prevailing investor concern around the Home segment in light of the industry-wide refi headwinds, it made sense that TREE's fiscal 2022 guidance already assumes some fairly drastic assumptions with Home expected to drop -15% to -25% Y/Y. Similarly, the H1 '22 outlook for the Insurance segment reflects expected challenges to revenue from a Y/Y growth standpoint following the FQ4 '21 dip in Insurance top-line (-24% Y/Y) and the weakening combined ratios widely reported by major US carriers. In contrast with the draconian assumptions embedded in the Home and Insurance guidance, secular growth in personal loans and a resurgence in credit cards within the higher-margin Consumer segment should offset much of this weakness. And perhaps more importantly, TREE has a track record of gaining market share in rising rate environments, and thus, I am confident it will be able to do so again.

Strategic Update Focused on Enhancing the Flywheel Effect

In recent years, TREE has significantly expanded its range of products to consumers (insurance being the most significant) as part of its longer-term goal to be a one-stop shop. Through new products and sales initiatives, LendingTree is effectively enhancing the flywheel effects of its line of businesses, with its latest focus on better leveraging its 1P data set to improve user experience and drive higher loyalty ahead. Other key focus areas include improving consumer experiences on its platform through more pre-approvals such as TreeQual for personal loans and credit cards (note there are now three live lenders using this model). Over the medium to longer-term, TREE has a clear opportunity to drive more product adoption for the asset side of its balance sheet as well, with My LendingTree (a comprehensive "Digital Advisor" for financial products) screening as an excellent fit for this strategy. Other promising initiatives for improving the flywheel effect include TreeQual (pre-approvals) as well as inbound calls and direct-to-click within the Insurance segment. Assuming management executes well, I see the robust product pipeline underpinning outsized growth ahead.

TreeQual Overview


Source: LendingTree Investor Day Presentation Slides

Freeing Up Cash for Additional Buybacks and M&A

Heading into fiscal 2022, expect a sharper FCF ramp up as TREE finishes its new HQ-related spend – recall that over the last year, TREE had averaged c. $15 million per quarter in capex before stepping back down to c. $7 million in its most recent quarter. Assuming this declines further to $5 million/quarter, TREE will have an additional $10 million per quarter (or c. $40 million/year) to deploy. And there could be more balance sheet flexibility on the way as well (note TREE already had c. $250 million in cash on hand as of end-2021) - having only liquidated a portion of its investment in Stash, there remain c. $160 million to be unlocked from the Stash investment on the balance sheet (almost double TREE's initial investment).

Another key positive on the capital allocation is that TREE has eliminated prior covenant restrictions around buybacks and M&A when its new debt facility was put in place. Effectively, the debt swap allows TREE to get far more active on both fronts – note that TREE has already resumed share repurchase activity, with c. $18 million repurchased leading up to December. Considering the strong balance sheet, my base case is that this will be followed by M&A or an accelerated pace of buybacks, implying incremental accretion potential going forward.

LendingTree Balance Sheet Overview


Source: LendingTree Investor Day Presentation Slides

Final Take

Overall, this was a positive update from TREE that offered a decent amount of insight into the state of the business. And with the Consumer segment set to be a major contributor this year as the Home and Insurance segments navigate temporary headwinds, I expect growth to return in the back half of the year. Longer-term, TREE's product scale remains intact, underpinning high revenue conversion and paid marketing execution, both of which should generate outsized market share gains amid the secular financial and insurance advertising shift over time. At present, TREE shares trade at c. 11x EV/EBITDA, leaving room for multiple expansion as the company proves out its competitive positioning and margin leverage post-COVID-19.

Data by YCharts

This article was written by

Analyst with a keen interest in the global markets, always sifting through company filings in search of compelling opportunities. Approach is heavily centered on the notion that one needs to be non-consensus right in making investment decisions. A keen follower of value investing legends such as Peter Cundill, Seth Klarman, and more recently, Rupal Bhansali.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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