With the Federal Reserve tinkering with interest rates nearly every meeting LendingTree, Inc. is picking a turbulent time to go public. And if the performance of competitors Mortgage.com and e-Loan are any indicator, LendingTree's IPO could wilt quickly.
Interest rate fears have walloped shares of e-Loan (Nasdaq: EELN) and Mortgage.com (Nasdaq: MDCM) as both are trading near 52-week lows (comparison chart). E-Loan is hovering around $10 compared to a high of 74 3/8. Mortgage.com is about $5 a share, far away from a high of 22 3/4.
LendingTree: Will its IPO grow?
When E-Loan and Mortgage.com went public in the summer of 1999 it was easy to be bullish -- Fed chief Alan Greenspan wasn't trying to slow down the economy. The Fed began tightening rates in the fall and maintained course. On Feb. 2, the Fed raised interest rates a quarter of a percent and said it would remain vigilant -- meaning another rate hike is likely in March.
And that's bad news for lenders. LendingTree (Proposed ticker: TREE, profile), however, is scheduled to price Tuesday night for trading Wednesday. The company, which also provides personal, home equity and auto loans, is offering 3.65 million shares with a price range of $10 to $12. Merrill Lynch is the lead underwriter.
The online loan market is promising in the long run. Forrester Research, a market research firm, projected online credit originations will grow from $25.7 billion in 1999 to $167.6 billion in 2003.
But LendingTree's IPO timing could be better. LendingTree is either bold or needs cash pronto. Or maybe the company knows something the average investor doesn't. The regulatory filings, however, don't turn up any surprises.
Like other online mortgage players, LendingTree plans to diversify its loan base, boost transactions and brand awareness. LendingTree's network includes more than 90 lenders.
LendingTree also reported fourth quarter revenue of $2.9 million and lost $8.8 million. For comparison, e-Loan reported revenue of $7.7 million and a pro-forma loss of $11.8 million in the fourth quarter. Mortgage.com hasn't reported its fourth quarter results.
In regulatory filings, LendingTree said competition is one of its biggest risks. 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.
But the biggest risk is clear -- interest rates. "During future periods of rising interest rates we may experience a decline in consumer traffic to our Web site," the company said.
The upside is that business booms when interest rates fall. Unfortunately for LendingTree and other online mortgage lenders the Federal Reserve seems intent on raising rates.
Odds and ends
Agency.com (Nasdaq: ACOM) shows why consulting pays -- the company easily topped Wall Street estimates and is working toward a profit. Chip equipment giant Applied Materials (Nasdaq: AMAT) reports first quarter earnings after the bell. Wall Street is looking for 77 cents a share. All is wonderful in chip land, but if Applied Materials gives any hint of caution shares could take some lumps. SBC Communications (NYSE: SBC) runs into regulatory problems as it seeks to offer long distance. Who cares? As a long-term shareholder, SBC's regulatory hiccup doesn't mean much. SBC will offer long distance -- it's a question of when not if.