Welcome. My name is Melissa Wedel. I have been with JP Morgan for 10 years, and I cover a number of consumer and specialty finance names, including LendingTree. I want to thank Doug Lebda, CEO and Chairman of LendingTree, and CFO Trent Ziegler for joining us today. Guys, I thought we could kind of jump straight into some of the strategic initiatives that we've talked about, that you guys have talked about at Investor Day and over the course of the last few earnings calls. At the Investor Day, you introduced your leadership team that was dedicated to some of these strategic initiatives. So I was hoping that you could walk us through how you think about the timeline of rolling out all those strategic initiatives and the impact on revenue growth and margin.
Sure. In terms of timing, well, let me just touch for people who might not be as familiar. If you think about our business, we have our day-to-day marketplace business, which is balancing supply and demand from lenders and insurance companies and consumers on the other side. We have our My LendingTree business, which is our upgrade product. And then in addition to that, we laid out a number of strategic initiatives at Investor Day. Among the two or three most important, I would say, would be one, what we're calling TreeQual. TreeQual is a way of us getting firmer offers of credit for credit card and personal loans. We're seeing that is yielding about four to five times higher approval rates among those lenders. And it's a small sample set. So I don't need four to five X. We don't need four to five X to sustain itself.
But the indications there are very, very good. And we have another 15 or 20-plus lenders who are in the pipeline for implementation. I would expect that that would start to bear fruit before the end of the year. Yeah, back half of the year. In addition to that, we have a completely new mortgage experience that we're testing right now in late May. And that'll roll out also kind of back half of the year. That we expect to move or could move conversion rates from the lender's perspective, from, let's say, if they're 2% to 3%, that would be a 50% increase in our mortgage business. And then it would obviously get the flywheel spinning. And then in insurance, a major initiative for us there is to have a digital agency or digital brokerage so that we can give consumers multiple real bindable insurance quotes.
While it's still early, it's only a couple points of our total insurance business. The monetization of that is actually already higher than kind of the calls and clicks business. What else do you want to add?
No, just the common thread in all of these things is a real genuine focus on improving the consumer experience, giving a genuinely differentiated value prop to consumers across all of our businesses. And those manifest themselves in different ways depending on the product that we're talking about. If you think about our business, I mean, we've got a good business that has proven throughout the last two years that it makes sustainable profits despite having headwinds in all of our major businesses across that timeframe. So we can take what we have in-house today and build on that. And then where we're really going to get the most optimization opportunity is getting more leverage, getting more mileage, getting more opportunities out of the hundreds of millions of consumers that we already have coming through our funnels every year.
Got it. Okay. So a quick follow-up question on TreeQual in particular. So on the most recent earnings call, you talked about roughly three credit card lenders being up and running on that functionality with a personal loan partner soon to come. But also taking into account your recent comments, a lot of that will be sort of back-end loaded into this year. Anything else to report, any updates to report since that time on further rollout or additional partners?
No, the only thing I would say since then is we've had a number of meetings with lenders. J.D. Moriarty, who's the President of our Marketplace business, has been meeting with lenders. And there is overwhelming optimism in looking forward to that product. The closest thing in the market would be what's called Lightbox at Credit Karma, which is basically a system which has credit card issuers and personal loan lenders uploading all of their underwriting criteria inside of the Credit Karma ecosystem. That has not been something that lenders have particularly liked. Nobody likes to give their secret sauce to a third party. And us working with Acxiom, and this is all well described in our Investor Day, so I won't bore you with it here. But I think the real growth in that is going to come from personal loan lenders.
Just to put it in perspective for a personal loan, if you come to LendingTree, because the credit boxes of lenders are generally much more idiosyncratic. SoFi looks at one set of criteria, and Upstart looks at another set of criteria, and One Main looks at another set of criteria, and they change all the time. Today, if you come in for a personal loan and we give you offers, there's a high likelihood that when you actually go to get the final approval from that lender that you'll be denied. Literally, probably 60%-70% of the time, you'll get turned down for that. You can come back to LendingTree and go through it again. This basically makes the approval rate from a consumer's perspective pretty much near 100% because you're actually hitting the underwriting boxes of those companies.
So it could be a major game changer in the personal loan business. And as Trent said earlier, it's way better for the customer because you're not getting denied. It's way better for the lender because they're not denying people. And it's way better for us because the conversion rates go up, and that has a direct impact on unit economics.
Can you elaborate on that a little bit? That was actually my next question. You talked about the increased conversion rates as you're delivering customers that are better fit for exactly what lenders are looking for. How does that scale in terms of monetization? It's not just a function of volume and increased conversion, but there's more value.
Yeah. So in personal loans, this is, I'll use what I call the CEO math. So don't hold me to it. But let's say a personal loan lender is looking to acquire a loan for $300 per customer. And you could articulate that in basis points. Stick with me for 300. If I'm only converting one out of 20 of those, I'm going to spend $15. LendingTree's expected value on a per inquiry basis is $15, which is $300 divided by 20. Obviously, if that conversion rate from one out of 20 goes to one out of 10 or one out of 5, that number goes up to $30 and $45 respectively. And if you look at the long arc of personal loans on LendingTree from, let's say, 25 years ago to today, 25 years ago, we had one lender. It was actually Household Finance.
You would fill out a form. We would send them the information. They would give you an offer about four days later and then tell you to come into a branch. Today, you have probably 100 lenders. 60 lenders on personal loans, all highly, highly, highly automated. By the way, let's go back to that Household example. They were in those days looking to get a loan for about $100 per loan at a 1% conversion rate. They wanted to pay. We were making $1 per inquiry. Today, that number is about $15 for that effect that I just talked about. If you follow that to $30 or $40 per, you can see the massive effect of that. It's very similar to what happened as Google continued to scale and help people like us.
If you go back 20 years when we used to do our earliest, earliest search campaigns, it cost me $1 to get somebody through search to fill out a form. Today, that's obviously much higher, but it's higher in proportion to Google helping us improve our conversion rates, improve our keyword buying, automated bid management, and all of those things has helped to get their flywheel kicking by advertisers like us paying more. And that's basically what our lenders do with us.
Thanks. Let's switch gears and go to the insurance segment. And you talked about a few of the headwinds on insurance, specifically some persistent inflation challenging loss ratios for the carriers. But you're also focused on delivering higher quality leads to these lending or to the insurance partners. So when you think about the margin, certainly the margin had took a hit in the Q1. You talked about sort of improvement throughout the rest of the year. Could you put some meat on the bones there? Are you looking at sequential improvement? Is this, again, going to be sort of more back-e nd loaded in the year?
Yeah, I'll start there. Yeah. I mean, look, if you think about what we've seen in insurance, clearly the last six to nine months have presented some challenges for our insurance partners in the property and casualty space. They've seen, as the world has started to reopen, they've seen more drivers out on the road. The cost of repairs due to supply chain challenges and other inflationary challenges have flipped their models upside down where their loss ratios have gotten out of whack. And so they're trying to pass premium increases through to consumers on a state-by-state basis. That process is playing out, and we're seeing that play out in real time. It's perhaps playing out a little bit more slowly than we would have expected at the beginning of the year. And so that factored into our reduced guidance on the most recent call.
But I think back to your question, Scott Peyree, who runs that business for us, has been through these cycles multiple times. This is not new. These cycles come and go in the insurance space. And I think we're taking the right approach, which is to say we want to be invested in the market, invested in our partners' success, be good partners for them, deliver them the volume and the consumers that they want in this environment such that when the market starts to normalize and their demand and their marketing spend comes back in a meaningful way, we're going to be the first ones to get turned back on. And so the result of that is a narrower margin for the time being. But we certainly feel like that will improve in Q2 relative to the Q1 and should get better as the year progresses.
We were running that business at 40% margins for most of the time that we've been in it since we acquired that business in the fall of 2018. Is 40 the new normal? I don't know. But we certainly firmly believe that it's something much higher than the 26% that we reported in the Q1.
Got it.
And then the only thing I'd add to that is, and back to the digital insurance brokerage, is if you think about QuoteWizard when we acquired it in 2016, it was a calls, clicks, and leads business. So you can either buy a data lead, a call, or a click. And the insurance carriers in that model don't give you bindable quotes. Now that we have our own brokerage, we can basically show you bindable insurance quotes from multiple carriers. And the expected value of that is already substantially higher than, not yet substantially higher than what we're getting from calls, clicks, and leads. And in addition, we would hope to pick up a renewal stream over time that will improve. So there's a bit of an annuity there as well.
Okay, so when we think about the bindable quotes, you talked about that as being a functionality that's available through My LendingTree. Is that required?
So it's available not only on My LendingTree, but it's also available on QuoteWizard. So QuoteWizard has it as well.
Okay. Okay. Got it. And so then I think turning to My LendingTree or the digital advisor approach that you're sort of taking here, we know you've added the bindable insurance quote functionality. You've talked about just this quarter, you talked about the credit score simulator in terms of improving that user experience and that customer experience. When you think about the adoption or the engagement with that platform, it's been a really deliberate ramp over time. And we've seen that over five plus years since you've rolled out My LendingTree. As you've highlighted that as a strategic sort of focus for you guys, what would you expect going forward in terms of adoption of the My LendingTree functionality in terms of users quarter- over- quarter, year- over- year?
All right. I'm going to let you do numbers, but I'll just do concepts. How's that? And then you can figure out what we say and don't say about that, so first off, My LendingTree, the idea for this really came out of the financial crisis in 2007, where I felt that LendingTree needed to evolve from just being about comparison shopping for, call it, financial do-it-yourselfers, where you're getting where you need to actively engage back and forth with lenders to get a great deal, and we're improving that. My LendingTree was meant to just give you the right answer. One of the things I always like to say is it's somewhat Walmart-esque about LendingTree. I always think of product design around what do wealthier people have, and let's bring that to the masses.
So if you have your family office, you can, and you need a mortgage on your house, somebody will go find it for you and tell you this is the right deal or do the comparison shopping, whether it's insurance or mortgage, obviously on investments too. And we wanted LendingTree to be that sort of digital financial advisor, if you will, for everything loans and insurance, and to be able to do it on an alert basis. So if anybody remembers Ron Popeil, the set-it-and-forget-it guy, we want you to set up an account with My LendingTree in exchange for you giving us your information. Our promise then is to alert you whenever we can save you money. You could save money from refinancing existing loan into a loan, so a mortgage to a mortgage or a personal loan to a personal loan.
You could save money by going across loan types, so consolidate your credit cards with a personal loan, and you can also save people money by improving their credit score, so for example, if you've got credit card balances and you start to pay those off a little more actively, we can help you simulate what your credit score is going to be and then really just help you achieve your financial goals, whatever they happen to be. When we talk about digital advisor, that's an internal name for, call it, the next launch of My LendingTree. We're doing some user testing right now on it. We're doing a lot of designs.
Because it doesn't have a marketing cost associated with it, because those 22 million people have come from the LendingTree network, we can make sure that we put only the very, very, very best consumer experience on there without regard necessarily for monetization on day one. And it's working really, really well. The Net Promoter Scores are high, and consumers really like it. The engagement on it isn't something that we look at as much because in some ways, it's not meant to be highly engaged with. It's meant to be there for you when you need it on a recommendation basis. What else?
Yeah. I mean, I think you hit most of it. Not a ton of numbers, sure, that we haven't already disclosed at this point. I'd say we're really focused on doing a ton of consumer research and user testing, as Doug said.
We're trying to figure out what are the right value props for the right consumers. We've obviously got today that 22 million users has been largely drawn from our personal loans business. And so you can imagine the type of consumer that that represents. It's going to skew a little bit lower on the credit spectrum. We have a real opportunity to start drawing more from our mortgage funnel into that user base, into that installed base. That presents a different type of consumer and a more highly qualified consumer that our lender partners will value more. And so we're trying to figure out how we evolve that customer base and the makeup of that customer base, and then what are the different value props that we can kind of deploy to drive engagement and drive help and improvement for different types of users over time.
And so that's kind of where we are in the evolution of that product. For the time being, we're really focused on developing the product, making it more engaging, understanding what those value props need to be. And then over time, it'll manifest itself in more users, higher quality users, more engagement, more transaction velocity, and ultimately better unit economics.
So when we think about sort of the testing that you're doing in the next iteration, is that a 2022 prospective rollout on the next version of My LendingTree?
Oh, yeah. No, it's Q3, right? Q3-ish?
Yeah. I mean, it'll be ongoing.
It'll be ongoing, but yeah, a major release in probably Q3-ish timeframe.
Got it, and so when you think about these additional functionalities that you're building in, including bindable quotes, is that going to be a major driver of sort of growth in the user base?
Yeah. I think it'll be a driver of monetization, not so much the user base, because you're bringing new functionality to those users. And then, as Trent said, bringing more people working on more. In addition to that, we're also working on more when Trent talked about the mortgage, bringing more people over. We're also working on integrating My LendingTree and the LendingTree marketplace more so that there's more reasons for you to upgrade to My LendingTree throughout that flow.
So I think we'll get it on volume and also monetization. And I think I'd also probably say that it's baked into our guidance. We do have some, as our strategic initiatives become more real, we will start to layer in that into our forecasts as we start to have good, more solid information. If it's ahead of where we think we are now, you'll be the first one to know.
Great.
Everybody will know at this point.
Everybody will know. Point taken. So maybe we could switch gears again and talk about M&A. Now, M&A has always been a part of your strategy, and I've always thought about it as being sort of bolt-on type acquisitions, plug and play a little bit. And you've talked about this conceptually for a long time, that you guys are always looking at what's out there. It seems like since you bought QuoteWizard, you really held back. Valuations weren't attractive. There was lots of interesting stuff. The valuation landscape having changed a bit. Curious to get your thoughts on what's attractive or if the uncertainty of this environment has changed your appetite.
Yep. Well, so far, and Trent and I can both comment on this from slightly different perspectives, probably. So when we take a step back first and talk about why M&A has worked for us, we were lucky and maybe a little bit smart that in 2000, when we went public, which by the way, this feels very similar to both 2001-ish and 2008, except our company is way, way, way better positioned this time. But in the 2001 timeframe, when things were troughing, and then again now, obviously, valuations have come down. However, ours has come down as well. But we were very lucky in those days. We started in offline advertising to advertise an internet company. Most companies that start on the internet, unless they have traffic coming to them for free, you have to go acquire traffic. You normally do that through SEO first because it's free.
Then you might graduate to SEM. Then you might graduate to display. Each time you do this, you're moving less targeted and more broad, but also bigger, and then you get to TV. We did that in reverse, and we did that because when AOL was still around, believe it or not, I'll never forget, they came to us, and I was a recent CPA graduate, if you can imagine. Took me three times to pass that exam, and so they came to us and they said, "Hey, we'd like you to be our partner in our money center for all of our loan products." And I said, "Great. What are the economics? What do we pay you?" They said, "$10 million." I said, "Okay, but how much traffic do you have?" They said, "No, no, no, no, no.
$10 million, and we don't know when we're going to launch it, but you'll be able to go public because you've got a deal from AOL." And I said, "Okay, but that's not an economic model." And our CMO at the time, a guy named Tom Redden, we had just hired from Coke, came into my office. He goes, "I think we can pencil out TV." And I'm like, "Really?" And he said, "Yeah." And so I'll never forget, we raised our IPO to spend $50 million on advertising under the premise that we were going to get to first variable marketing, break even, and then obviously break even, break even. And the reason we had to do that is we had lenders really saying, "Hey, Doug, this is such a major change of the way we currently do business that you better make it.
It's got to move our needle or else it's just a side project," and that residual TV advertising has enabled us to have a very high aided brand awareness and therefore make our online marketing now much more effective. Fast forward to our M&A strategy so far. You take a company named Student Loan Hero, which is out there marketing student loan refinancings, which by the way, that business is not doing so hot right now, obviously, because we keep postponing the dates on student loan repayments. But you take Student Loan Hero, you rebrand it LendingTree, and you get a natural marketing uplift advantage. Over time, we can go help with lenders, ditto with CompareCards. You also get that from QuoteWizard. You'll see much more branding along the lines of LendingTree in the future.
Right now, I would say we'll start to see more of those, but I haven't seen the private markets necessarily fully. It's much easier when you can see your public market valuation to say, "Well, that's a valuation." Private companies seem to be taking a while to get religion, but I think it'll happen. Now, at the same time, right now, the best use of our capital is our own stock. What else would you add?
No. I mean, I think that's well covered. I'd say our strategy is going to evolve a little bit, right, as you think about where we're going strategically. We're, as we talked about earlier, focusing a lot more on the consumer and how do we improve that experience and how do we improve that engagement. And so I think on balance, M&A opportunities that we're going to look at will be more geared toward that as opposed to just diversifying into a new product or into a new vertical.
Okay. The other question we hear a lot from clients is about Tree itself. The flip side of that coin, with valuations where they are now, would there be a strategic buyer for you guys or a potential take private, given the levels that you've been trading at?
As a large shareholder, I would say I want to do whatever is right for shareholders. I don't think a strategic sale would make any sense right now and anything else just because of valuations. In terms of the other stuff, I guess we'd have to see something interesting come in that would be worthy of taking to the board that shareholders would love to. That's a conceptual thought, but it's those I like to think that those opportunities present themselves or not, and you deal with it when it's there as opposed to speculating about it.
Okay. And speaking as a large shareholder yourself, we've seen a lot of comp tied PSUs just tied to stock price. And with the sort of beating the whole space has taken generally, can you talk about just the motivation and staying engaged and keeping both yourself, but also your team, your leadership team, and keeping everyone focused?
It's a little easier, well, for me, I am a completely mission-driven person. From the day I started this business, when I got the runaround from a bank over a $55,000 mortgage, I'm basically on a revenge binge to make sure that nobody else has to go through that. I feel like we're closer and closer to those days because technology and lending has just come a long way from when we were faxing forms to people instead of digitally doing things, etc., etc. We could only really innovate as fast as our lenders do, and they're really innovating. So I was that.
What was your question again?
Staying motivated and keeping the.
Oh, staying motivated. Yes, on the mission, that's that. Financially motivated, this is 95% of my net worth, so I'm certainly motivated on that front. Keeping the team. I think that probably there's a little bit of subtext in there. Everybody should know I signed a new management contract three years ago that basically paid me in stock and performance options that started at $300 a share and was going to go up by 15% a year. At the time I struck it, I thought it was a good deal. Quite frankly, I still think it's a good deal, except for we had COVID for two years of it. It's a big reset. No, it's and then the team is extraordinarily motivated. I'm going to let Trent speak for himself on that.
We just got out of a meeting last week with our top 66, a good cross-section of senior to mid-level management. 50% of the people weren't there two years ago. In my executive team, I think only one person has been in the same seat for more than three years, and our CTO has been with us about a year. Now, we've had a pretty consistent management team, but as you see, Trent, people have changed seats and been promoted, but the team's really gelling, really excited. The hiring we did over the last couple of years, just a lot of really, really smart people, and I think everybody's fired up. What do you think?
Yeah. I mean, I've been at the company for 10 years. I've seen the stock go from 12 to 430 and back to 60. The strength of the company and the foundation that we have to build on from here at 60 is miles better than it was when we started at 12, 10 years ago. I think we've had some shuffling of the leadership team.
But as somebody who's been at the company for 10 years, I have more conviction in the leadership team and the alignment that we have and the fact that we're working on the right things today than I've ever had. I mean, that's my motivation. You get grants every year, and sometimes you get them at a high price. Sometimes you get them at a low price. But it's when the market's dislocated that creates opportunities.
It's interesting, being kind of the third major correctiony thing that's going on, I guess. The first time, we were 100% mortgage effectively in 2000, and we were unprofitable, and I had no cash. So when our stock went down to $2. We went public in February of 2000. I was planning on doing a secondary six months later, and then the market fell out of bed, and I needed $10 million more. I'll never make that mistake again. That was very costly, $10 million. Then we sold to IAC in 2003. In 2008, when they decided to spin us off and I decided to take it back, we were still 90% mortgage, and we owned a mortgage company.
So we were getting bleeding by loan buybacks, and we were losing money again for a while. Now we've got several hundred million dollars in cash, a completely diversified business. If you looked 10 years ago at our top lenders, top clients, you would be hard-pressed to recognize one of them, probably except for maybe Quicken in those days. And today, it's every major insurance company, every major bank, every major credit card issuer, all the non-banks, and then a whole bunch of fintech lenders too. So it just feels just monumentally different. And from a valuation standpoint, I mean, it's seven times EBITDA. We're probably the lowest we've ever been for a while too.
All right. Appreciate your time today. I think we're coming up on our time allocation here, so we'll call it at that.
Thank you all very much. If you have any questions, meet Andrew here in front, and we'd love to have you join our team. Thanks.
Thanks.