Some are also questioning the timing of the purchase, which comes as LendingTree’s growth engine, the home refinancing market, is showing signs of cooling off.
On Monday, the company snapped up LendingTree in an all-stock deal worth $734 million, a move that puts an online exchange for comparing loan rates (home, auto, and personal) under USAI’s expanding e-commerce roof.
The move makes sense, analysts said. Already, the New York-based USA Interactive is targeting online travel, vacation and events-booking with its Expedia, Hotels.com and Tickemaster properties. Now, with LendingTree in the mix, USA Interactive has bought a company with a similar business model, only in this case it essentially collects tolls on loans that it helps to sell on behalf of banks.
Jeetil J. Patel, financial analyst with Deutsche Bank Securities, is among analysts who applauded USAI’s decision to add LendingTree to its portfolio of online transaction companies.
But Patel also noted in a research report that the pricetag represents about 34 times LendingTree’s 2003 net income, which led him to question why the company had paid that much now.
LendingTree’s business has benefited from the two-year home mortgage refinancing boom that followed record low interest rates. But new loan applications have been down this spring and the market for refinancings is slowing down as consumers await signs on the health of the economy. As such, Patel is expecting a sharp decline in refinancing over the next few months, which is why he thinks the deal was a bit pricey.
Barry Diller, USAI’s CEO, brushed off such concerns. In an interview with the Wall Street Journal, he said he is “quite satisfied” that the company paid an “even, fair price, which will in a year or two be utterly forgotten.”
Diller also said he faced the same critiques over the price the company paid for Expedia and Hotels.com, which were not profitable when they were purchased.
During a press conference after the deal was announced, Diller said USAI’s vision is to build transactional companies, and financial services certainly fits that ideal.
“Diller seemed very excited about financial services,” said Shaw Lively, analyst with Financial Insight, which is part of tech research firm IDC. Lively sees why: LendingTree doesn’t actually lend. It only serves as a middleman for banks.
“If Diller had bought a financial institution, he would have bought a completely different kind of business with all sorts of new regulatory hassles,” said Lively. “But he didn’t, and that makes it a smart deal.”
Shaw also thinks the refinance issue is not a major concern. “Loans are one thing people want to deal on. The market is very rate driven. People will always want to comparison shop whether the rates are 12 percent or five percent.”