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Why Is Tree.com (TREE) Down 31.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Tree.com (TREE - Free Report) . Shares have lost about 31.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Tree.com due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

LendingTree Q4 Earnings Miss Estimates, Costs Escalate

LendingTree reported adjusted net income per share of $1.12 in the quarter, lagging the Zacks Consensus Estimate of $1.40 in fourth-quarter 2019. Further, the figure comes in lower than the prior-year quarter’s $1.22 per share.

The company’s results were adversely impacted by higher expenses. However, revenues and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) displayed impressive growth.

The company reported GAAP net income of $1.5 million or 10 cents per share compared with the $0.3 million or 2 cents in the year-ago quarter.

For 2019, adjusted net income was $82.4 million or $5.64 per share compared with the $80.3 million or $5.70 per share witnessed in 2018.

Higher Expenses Partially Muted by Revenue Growth

For 2019, total revenues were $1.11 billion, up 44.7% year over year. The revenue figure came in line with the Zacks Consensus Estimate.

Total revenues jumped 26% year over year to $255.2 million in final-quarter 2019. This upside primarily stemmed from higher home, consumer and insurance revenues. The reported figure, however, missed the Zacks Consensus Estimate of $262.9 million.

Total costs and expenses came in at $246.2 million, surging 23% from the prior-year quarter. This upswing can primarily be attributed to rise in almost all components of cost.

Adjusted EBITDA totaled $45.9 million, up 16.5% from the $39.4 million reported in the prior-year quarter. Variable marketing margin was $93.8 million, up 19.3% year over year.

As of Dec 31, 2019, cash and cash equivalents were $60.2 million, plummeting nearly 42.7% from Dec 31, 2018. Long-term debt was up 5.4% from the prior-year end to $264.4 million. Total shareholders' equity was $402.3 million, up 16.2% from the Dec 31, 2018 level.

Outlook

Concurrent with the December-end quarter results, management issued first-quarter and full-year 2020 estimates.

First-Quarter 2020

  • Total revenues of $296-$306 million projected.
  • Adjusted EBITDA anticipated in the $43-$46 million band.
  • Variable Marketing Margin projected at $97-$104 million.


Full-Year 2020

  • Total revenues of $1,250-$1,300 million estimated, up 13-17% year over year.
  • Adjusted EBITDA anticipated in the $225-$235 million band, up 14-19% year over year.
  • Variable Marketing Margin projected at $450-$470 million.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted 57.14% due to these changes.

VGM Scores

At this time, Tree.com has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Tree.com has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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