We came across a bullish thesis on LendingTree, Inc. (TREE) on Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on TREE. LendingTree, Inc. (TREE)’s share was trading at $39.87 as of Dec 3rd. TREE’s trailing and forward P/E were 20.25 and 11.70 respectively according to Yahoo Finance.
A customer receiving counsel from an online marketplace representative, exploring options on a laptop.
LendingTree (TREE), a relic of the dotcom era, continues to endure under the leadership of its founder and CEO, Douglas Lebda, who retains a 16% stake in the company. After 30 years at the helm, Lebda’s ability to navigate emerging challenges, particularly the AI revolution, is under scrutiny. Despite these concerns, TREE presents a compelling recovery story, with the potential for a significant rally as it regains lost ground in both revenues and valuation multiples. While disruption looms, TREE’s near-term prospects are buoyed by improving financial performance and a favorable macro environment.
TREE operates as an online marketplace where users compare quotes for loans, credit cards, insurance, and other financial products. The company monetizes its platform through lead sales and premium placements for lenders and insurers. While AI-driven competition from tech giants like Google poses a long-term existential threat, TREE’s relationship with Google remains robust, with no immediate signs of traffic erosion, unlike peers such as Chegg. This dynamically positions TREE to capitalize on current market tailwinds.
Insurance has emerged as TREE’s strongest segment, with revenue in the recent quarter annualizing to $676 million, far surpassing the $326 million peak of 2021. The broader recovery in the insurance sector has bolstered TREE’s business, and management anticipates further growth over the next 18 months, even without significant rate cuts. Meanwhile, the mortgage segment, critical for returning to past revenue peaks, remains hindered by frozen housing markets. Still, TREE’s total revenue for Q3 2024 reached $260 million, the second-best Q3 in its history, highlighting a dramatic recovery from the lows of 2023. This trajectory suggests TREE could achieve over $1 billion in trailing twelve-month revenue as early as next quarter.
The stock has rebounded from $10 to a high of $60 before settling around $40, with the recent decline attributed to a non-cash impairment of goodwill, creating an attractive entry point. If TREE’s segments recover to 2021 levels, the company could generate $1.45 billion in annual revenue, with upside to $1.6 billion factoring in inflationary growth. Valued today at $550 million, a return to just 2x sales would imply a market capitalization of over $3 billion, offering a potential 5x return within two years.
While AI disruption may ultimately undermine TREE’s long-term viability, the company’s recovery trajectory and undervaluation present a unique opportunity for near-term gains. For investors, TREE represents a high-reward proposition, albeit with clear risks tied to technological evolution and competitive pressures.
LendingTree, Inc. (TREE) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held TREE at the end of the third quarter which was 17 in the previous quarter. While we acknowledge the risk and potential of TREE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TREE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.