LendingTree Inc. (Nasdaq: TREE), which connects consumers with lenders on the Web, traded up 8 5/8 to 20 5/8 near midday Wednesday. The company priced its 3.65 million shares at 12.
LendingTree priced at the top of a $10 to $12 range. If demand is strong enough, the company will sell an additional 547,500 shares, bringing the IPO's total proceeds to $42-$50 million. Merrill Lynch is the deal's lead underwriter.
Although competitors such as e-Loan (Nasdaq: EELN) and Mortgage.com (Nasdaq: MDCM) have tumbled on interest rate fears, LendingTree's chief executive, Douglas Lebda, said LendingTree so far has proven immune to a rise in interest rates. LendingTree said it's a matchmaker or "stock exchange" linking consumers with lenders. e-Loan and Mortgage.com have either underwriting or origination risk and are more sensitive to interest rates.
"We have shown that in the past we have been able to grow despite rising interest rates," Lebda said in a telephone interview with Reuters.
The company closed 12,412 loans worth $439.6 million in the fourth quarter, up from 9,540 loans valued at $266.2 million in the third quarter.
However, interest rate fears could diminish LendingTree's appeal on a macroeconomic level. Interest rate concerns have knocked shares of e-Loan and Mortgage.com down near 52-week lows.
Randall Roth, an analyst at Renaissance Capital, said LendingTree doesn't have as much interest rate risk as a Mortgage.com, but there is a macroeconomic risk should rates go higher and dampen demand for LendingTree's services. In regulatory filings, the company cites interest rates and seasonality as a risk..
On Thursday, Federal Reserve Chairman Alan Greenspan makes his Humphrey-Hawkins speech, which will be closely watched by investors trying to foresee what the Fed Open Market Committee will do with interest rates again next month.
If the Fed raises rates, that's bad news for lenders. But the online loan market is promising in the long run, according to Forrester Research, which predicts online credit originations will grow from $25.7 billion in 1999 to $167.6 billion in 2003.
"During future periods of rising interest rates we may experience a decline in consumer traffic to our Web site," LendingTree said in its filings. Aside from the risks posed by interest rates, Lending Tree also faces competition. In addition to e-Loan and Mortgage.com, the company battles online lenders such as giggo.com, and iOwn.com and referral services such as Quicken.com (Nasdaq: INTU), MSN HomeAdvisor (Nasdaq: MSFT), and getsmart.com. Some of those competitors are also in the LendingTree network.
As with most Internet start-ups, LendingTree also faces risk of continuing losses. The company reported fourth quarter revenue of $2.9 million and lost $8.8 million. For 1999, loss was $24.7 million on revenue of $7.0 million last year, compared with a $6.4 million loss on $409,000 in revenues in 1998.