LendingTree (TREE) is trading sharply higher today (+14%) after reporting strong Q2 earnings/guidance this morning. In terms of quick background, TREE primarily operates through its LendingTree.com segment. It's an online loan marketplace where consumers can do comparison shopping for loans. Basically, consumers visit the site and enter data about themselves and state what kind of loan they are looking for. Lenders then compete to provide loans at the best rates and TREE receives a fee for each lead.
LendingTree does not charge consumers or small businesses anything. Revenue from its mortgage products are mostly derived from upfront match fees paid by Network Lenders that receive a loan request. Because a given loan request form can be matched with more than one Network Lender, up to five match fees may be generated from a single consumer loan request form. Revenues from its non-mortgage products are derived from upfront match fees paid on delivery of a loan request, click or call and closed loan fees. For its credit card product, TREE sends click traffic to issuers and are paid per card approval.
TREE does not take the loan risk itself, it's more of a lead generator for lending institutions which pay a fee to TREE. Most of its business is for mortgages but it has been branching into other non-mortgage credit categories as well: home equity loans/lines of credit, personal loans, credit cards, auto loans, student loans etc. Of note, IACI acquired TREE in 2003 but spun it off in 2008.
Turning to the Q2 results, TREE reported non-GAAP EPS of $0.90, which was up 8% from the prior year period. Revenue rose 62.0% year/year to $152.8 mln, well above prior guidance of $133-137 mln. The EPS was light of market expectations but you can see the revenue came in much stronger than what the company had expected. Adjusted EBITDA rose 13% YoY to $27.0 mln, which also was above prior guidance of $23.5-25.0 mln.
The guidance was pretty impressive as well as TREE expects Q3 revenue of $155-160 mln (+64-69% YoY), which is well ahead of market expectations. Adjusted EBITDA for Q3 is expected to be $28-30 mln. Full year revenue guidance was bumped up to $580-590 mln from prior guidance of $535-545 mln. Adjusted EBITDA guidance for 2017 was increased to $103-106 mln from $95-99 mln.
To understand the TREE story, you have to break down the numbers a bit. Most of TREE's business had been mortgage loans but the company has been expanding aggressively into non-mortgage loans (home equity, personal loans, credit cards, autos, education, insurance). As recently as 2013, non-mortgage loans represented just 11% of revenue. That grew to 20% in 2014, 35% in 2015 and 43% in 2016. In 2017, non-mortgage accounted for 53% of total revenue in both Q1 and Q2. So you can see non-mortgage is quickly becoming a larger part of the overall business.
Total loan requests in Q2 grew 48% YoY to 5.4 mln. Revenue from mortgage products rose 28% YoY to $71.5 mln, primarily driven by growth in purchase revenue, although refinance revenue grew more than 10%. TREE also saw record revenue from non-mortgage products at $81.3 mln, up 112% YoY. By far, the biggest growth driver for its non-mortgage business is TREE's credit card revenue which jumped 377% YoY to $37.0 mln. Personal loans revenue grew 23% YoY to $20.5 mln.
Overall, TREE is seeing substantial growth in consumer demand, solidifying the efficacy of LendingTree's business model. Simultaneously, the company is executing well in terms of expanding into new products, strengthening relationships with consumers, improving the consumer experience etc. TREE says its business continued to fire on all cylinders in Q2.
On a final note, LendingTree's success has allowed it to be pretty active on the M&A front. In June 2017 alone, TREE made two acquisitions. It acquired MagnifyMoney.com, a consumer-facing media property that offers unbiased editorial content, expert commentary, and resources to help consumers compare financial products and make informed financial decisions. TREE also acquired DepositAccounts.com, another consumer-facing media property in the depository industry. TREE's stock price has been on fire. It was trading around $75 in late October 2016 and is now around $210 in less than a year, and it's getting a big push today.