Q2 2019 Earnings Call
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Good morning, I have your conference I'd number please.
Hi, yes, it's the lending tree.
Conference I don't think there is a conference I'd.
[noise].
Okay do you happen to know the speaker or the topic of the call.
Yes, the earnings call for the second quarter.
Thank you May I have the spelling of your first and last thing.
First thing Chad CH 80.
Last name is de isn't David O E. R. G E.
I have your company nicely.
Era advisers.
He or a.
Yeah.
Thank you I will join you now.
Bind quote Wizard and value Penguin team is executing incredibly well in carrier demand for our leads remains robust.
The credit card team extended their their strong performance from Q1 with 56 million in revenue in the quarter up 45% year over year.
The continued strength in credit cards remains a function of improved issuer integration and partnership and in turn pricing, thanks to our ability to deliver high quality volume at scale.
And as an additional sign of increased relevance to major issuers. We're in the early stages of building.
To enable integrated prequalification of applicants.
Lastly, we did see some pressure in our personal loans business in the quarter.
While $41.1 million of revenue and 14% year on year growth is nothing to apologize for the deceleration in this product is adversely affecting our overall margin profile relative to our original outlook for 2019.
As we've said before personal loans is among our higher margin products, primarily because it is the largest beneficiary of the my Lendingtree user base and enjoys both organic and repeat traffic. However, as it becomes a smaller piece of the overall mix and particularly against our original outlook. There are real margin implications for the quarter.
And as we guide for the remainder of the year, we need to evaluate this contribution relative to the decisions we are making in the rest of the business.
For the second quarter total variable marketing margin of 93.8 million was solidly within our prior guidance and represents growth of 39% over the prior year, which is terrific given the stage and scale of our company.
That said at just shy of 34% of revenue the slowdown in personal loan growth is adversely affecting our overall margin profile.
While it remains a very high margin business for us its contribution to the overall mix relative to our initial outlook for the year helps in part explained why the revenue upside we're seeing is not necessarily translating into margin.
Beneath variable marketing margin, we posted posted adjusted EBITDA of 46.3 million in the quarter.
Up 25% year over year and in line with our prior guidance our fixed expense base was in the quarter and should continue to be a source of operating leverage.
Looking at GAAP profitability, we reported net income from continuing operations of $13 million or 87 cents per diluted share.
On a non-GAAP basis, adjusted net income in the quarter was $17.6 million or $1.18 per diluted share our diluted share count increased considerably in the second quarter, primarily driven by appreciation in our stock price and the corresponding dilutive effect of our outstanding convertible bonds for context, our diluted share count increased from 13.6 million at the end of the year to $14.9 million in Q2, almost entirely due to to the stock price and its effects on the convert so there's definitely some noise in our adjusted EPS.
Now, let's shift to our updated guidance there are several moving pieces driving our revised outlook.
On the one hand, we do have some margin headwinds relating to the slowdown in growth in our personal loans business on the other hand as evidenced by our revenue growth, we clearly see pockets of opportunity across many of our businesses.
We know that we can grab market share and wallet share even if it is lower lesser margin and we believe those are opportunities we should absolutely capitalize on.
As such we are increasing our full year revenue guidance from a range of a 1 billion 62 1 billion 90 to a range.
Over $1 billion 82 billion, one an increase of $15 million at the midpoint Accordingly for VMM, we're reducing our full year outlook to $390 million to $405 million a decrease of approximately 10 million at the midpoint.
While we are clearly seeing some momentum and positive topline trends, we're facing some pressure on margins in certain products as discussed.
And we also want to preserve some flexibility to invest in my Lendingtree and in other specific marketing initiatives to continue market share growth across categories.
It is important to note that the incremental investments we have planned are not necessarily isolated to brand or TV spend.
While we continue to be pleased with our offline brand investments to date, we also want to comment real dollars to growing new channels and adding new lenders in mortgage we want to continue to drive outsize user growth through our personal loans funnel, we obviously want to double down on my Lendingtree and we have increasing conviction in the metrics around all of the above.
Consistent with the decline in VMM, we are decreasing our adjusted EBITDA guidance for the full year to $195 million to $205 million, which still implies roughly 30% EBITDA growth on the year.
For the third quarter and consistent with our full year guidance revenue is anticipated to be in the range of 290 to 300 million.
Variable marketing margin is expected in the range of 104 $209 million and adjusted EBITDA is expected to be in the range of $55 million to $60 million.
We feel very strongly that it's prudent to take advantage of the favorable top line trends we're seeing.
And to give ourselves the opportunity to invest in the brand's technologies people and processes that will take this company to the next level, while still delivering exceptional results results for shareholders and we believe this outlook appropriately balances those goals given what we've what we're seeing in the market.
With that I'll hand, it to Doug for his perspective.
Thanks, Jay and thanks, everyone for joining the call today I want to take the time to provide some high level thoughts on what we're seeing across the business and some of the key initiatives we are executing against.
First of all our second quarter results were once again terrific our insurance business led by the glow Wizard team continues to execute flawlessly.
The credit card business has emerged as a bright spot throughout the first half of the year and we achieved our stated goal of sequential growth in mortgage by growing that business by nearly 20% over the first quarter.
As we look across the business our diversification continues to be a real asset as it allows the ability to continue investing in key strategic priorities. Despite challenges in any given area.
Now with JD already having discuss the specifics I want to put further context around our revised guidance.
As evidenced by the top line outperformance exhibited throughout the last two quarters and the subsequent increase in revenue guidance announced this morning, we are clearly seeing pockets of opportunity across the various businesses to lean in and grow market share.
And as I'll tell you, we're capitalizing on those opportunities.
So whats reflected in our revised guidance is the fact that we are consciously choosing to forego some near term margin in the back half of the year and exchange from market share gains and an improved competitive present competitive positioning in several key areas.
In mortgage we've spoken at length about the dynamics of lender behavior in the context of interest rates with the upshot being that the favorable interest rate environment. We find ourselves in today is only favorable to us as our lenders rebuild capacity.
The capacity constraint really only applies to our mortgage business, but it is a constraint to grow in the current environment.
For context, our volume and of mortgage inquiries in Q2 was up more than 40% over just the first quarter, but our average revenue per lead declined 16% because existing lender capacity simply couldn't support the surge in volume. So one option for us would have been to simply pullback on marketing to preserve margin as and you've seen us do that before however, we continue to view the mortgage opportunity as a massive one and thanks to the diversified portfolio of businesses. We're now managing we view this favorable rate environment as an opportunity to gain share with both consumers and lenders.
We are adding new sources of traffic, we've begun to see some incremental capacity wins late in the quarter and into July and an increasing percent of our mortgage volume is now being served through various selection based consumer experiences as opposed to our traditional phone based experience.
This is not just what we've previously described as rouleau, but a variety of curated experiences based on early signals and intent at the top of the funnel.
To summarize this we have a great new mortgage experience that's taking on a variety of forms that has a much higher net promoter score and is very different than our current experience, but still gives the consumer choice and empowerment.
Our new mortgage experience is also now integrated into my Lendingtree and the net promoter score from the new mortgage experience is simply outstanding.
As a result of these trends, we plan and to lean into marketing this new experience like we do with all of our emerging businesses at effectively breakeven.
And as we are increasingly confident in our marketing cost attribution, we are willing to market to get users that will monetize over time and so instead of simply on the first product.
In personal loans, we are taking a similar posture.
In Q2, our personal loans products saw compressed margins for reasons, we talked about in Q1.
Our clients are being appropriately smart about their underwriting.
And drilling down we are seeing more banks moving into the prime personal loan space at lower rates than the early entrants pushing those online players into more mid prime and subprime segments. While this is great for the overall competition in the marketplace competition, among lower price lenders in the prime segment limits pricing upside and margins in the sub primes and margin in the sub prime segment are structurally lower.
However, there is a hidden lifetime value story here as well.
Personal loans are the single most popular product within my Lendingtree, representing approximately 60% of our my Lendingtree revenue.
Instead of milking this business for margin, we continue to invest in marketing that pays off over multiple months and in the case of my Lendingtree even longer.
Additionally, personal loans produces over 60% of my Lendingtree subscribers and behind my Lendingtree and the new mortgage experience. This product has our highest net promoter score.
Finally, and most importantly is my Lendingtree, where progress has been fantastic.
A few weeks ago, we launched the latest version of our my Lendingtree, App, which moves the value proposition beyond free credit score and beyond loan alerts to giving consumers a holistic picture picture of their financial health.
We are now incorporating monthly cash flows savings and investments our credit services business is also now integrated with a tool to help users dispute airs on their credit reports online.
On the B to B front end my Lendingtree, we have signed five new co brand deals in the second quarter to add to the two that we've previously announced these include large publishers and performance marketers financial services firms and credit bureaus, and our B to B pipeline continues to build with over 15 perspective partners in the queue.
Additionally, phase one of our insurance product is integrated into my Lendingtree as well.
And we are working on some very exciting insurance features that are all still in our pipeline for the rest of the year.
On my Lendingtree metrics I'm thrilled to report that we have increasingly solid and extremely encouraging developments.
One we now have a solid model to scale my Lendingtree marketing, we will continue to refine the model with further testing, but we're confident enough that we can now market Lendingtree My Lendingtree profitably.
Two we are equally confident about our monetization.
While on acquired subscriber breaks even over a much shorter period of time, we are seeing in Dre ongoing engagement and revenue 50 plus months from their initial signup.
Taken together what this means is that we are increasingly confident in our marketing costs, our monetization and thrilled with our customer response across the overall platform in June progress was exceptional with new customers on the platform growing 17% over the prior year organic repeat customers grew a remarkable 36% demonstrating the momentum were seeing across marketing and product.
Because of that in the back half of 2019, we are going to increasingly lean into acquiring new customers. While we also focus intently on building on these wins. So we can grow even more aggressively in 2020 and beyond.
Longer term I can see us completing the strategic pivot that we've talked about to a subscriber led savings alerts centric product that surrounds the customers with savings across all products and engages monetizes and delights customers over their entire lifetime of financial transactions.
In conclusion, I'd say that I continue to be incredibly encouraged by our prospects. This market opportunity continues to be huge and underpenetrated and competitively no. One is better positioned to capture the opportunity than we are.
This company has a long established track record of meeting shareholder commitments and delivering results as promised and we will continue to do so going forward.
Our ability to now grow with confidence as a platform is a true competitive advantage for lendingtree and with that we can open the call for today.
Ladies and gentlemen, if you have a question at this time. Please press the star and then number one key on your question on telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Your first question comes from the line of Mark Mahaney with RBC capital markets.
Great. Thanks, two areas if you could please drill down on the other non mortgage.
Segment.
And then it fell a little bit sequentially I know, there's a lot of different elements in there just if you could call out.
What growth dynamics, you're seeing in there and then secondly on the insurance revenue that seems to be growing really well just talk about the sustainability of that growth rate. Thanks a lot.
Absolutely markets JD I'll start on the first question, which is simply.
You're absolutely right that other category that we've talked about those tend to be very high margin businesses for us and there are two businesses there that.
Our basically getting the negative consequence of this rate environment. One of those is home equity and we started in Q1 with actually some strength in home equity, but as rates have dropped.
Lenders are increasingly focused on refinance opportunities and are getting lots of organic volume. So home equity is in that other bucket and that lag lagged a bit in the quarter. Similarly deposits, which as you know we acquired our deposits business in the middle of 17, its been an exceptional story for us.
But as you can imagine.
Lenders or banks are not exactly clamoring for deposits given what's happened to rates. This year. So those two things did contribute to that other category not growing as fast in Q2 as it had in Q1.
And clearly those businesses have great Mark there are other businesses in there that are that are doing well our small business.
Offering for instance is doing exceptionally well, but in aggregate those two certainly did drag on on Q2.
As it relates to insurance and I'll, let Doug Doug speak to this as well we continue to be really encouraged by the end market, they're effectively the the.
Increasing diversification of the carriers that our team is operating with and the competitive wins that theyre getting in the marketplace.
Diversifying the carrier base, but also just getting increasingly integrated with carriers and offering them is different.
Different products and.
And better volume at scale so I.
I don't have to tell you that any particularly in insurance the only I'd only add a couple other things.
One and we'll have more specific market share and in wallet share it at Investor day for insurance. This year, we'll definitely be drilling down on that but it's still very very underpenetrated carriers are doing a lot obviously have their own advertising both on TV and on the internet. So.
As they increasingly can move spend to aggregators like us.
We think that works. This company has I just continue to be impressed and just thrilled with the performance of this team.
They've got wonderful wonderful relationships with carriers.
Carriers and what was the what was her team trust each other.
We also which is sort of not just directly related their business, but they gave us a fantastic group of people who are very very entrepreneurial who I think are going to have a great.
Impact on our business also opened us up to the Seattle market, which we love and and Thats a group, we're going to we're going to really build around there. They're just a wonderful management team a great group of people, who just execute like crazy.
Thanks, Doug Thanks JT.
Thanks Mark.
Your next question comes from the line of Jason Squali. Thanks.
Great. Thank you. Thank you very much just two quick questions from me can you actually just share with us what the organic I guess pro forma growth was it this quarter I think Q1 was around 15%.
And on the the the VMM percentage the.
I know you're not guiding to 2020, but how should we think about the trajectory of VMM margins as you kind of go through the second half of the year increase your TV spend and brand increase these investments that you are talking about are we looking at 2020 as it potentially another step down or are we seeing 2020 as a potential.
Data point to get back to that 35% to 40% long term target that you guys have spoken about in the past. Thank you.
Let me.
Take the second one we're actually I think they're going up a number here as well to on your organic question.
On VMM margin.
Right now I would say that the way the way we look at the business I think is where you guys look at the business, which first is you look at what is the business doing sort of at its core going forward regular growth. What you sort of know plus whats plus initiatives that you can kind of see and then after that we both things off so right now I would say that you could see a scenario where we.
Where we do invest more heavily in.
In marketing that is profitable, but profitable over time.
However, when we do that we'll be able to call. It out so we could say to you but for this spend of acts in this quarter.
It would have been why.
We're seeing the my Lendingtree marketing.
Paying off in about.
A little over a year.
I don't want to get really specific and that's with just today's monetization and and forecasting not.
Pretty conservative monetization growth going forward and what we're going to do the rest of this in the next four or five months as I said in my prepared remarks, we're going to continue to test continued tight on our numbers continue to improve the customer experience.
Continue to integrate things get more integrated with insurance try to drive that monetization up.
And then as that goes up we can then.
Lean into marketing the other thing that I would say to this also helps or leave your mortgage capacity problem too because as you move to a selection based model lenders see fewer leads but they get.
But they are getting them deeper down the funnel.
And that enables them to obviously be much more efficient.
So.
Use of on your first question was inorganic is revenue that you're giving out there because it's a little bit noisy with Morgan recognize mortgage quarter year on year is down 18% that's relative to down 37% in Q1, that's clearly dragging on the core let me give you some piece parts to that you can come up with looking at aggregate credit cards up 45.
Credit cards up 45% now now.
That obviously last year's second quarter, if you remember that was a challenging quarter for card.
Personal loans up 14%.
We talked about other.
We don't disclose the scale of things like small business credit services and otherwise.
But the other business that I neglected to mention when answering Mark's question is reverse thats a business, it's down considerably just because of what's going on in the end market. There that's down 48% year on year.
And so that's just not a healthy end markets. So it's not something from a marketing perspective, we're spending a lot of time on right now.
But when you're trying to get to a comparison year over year.
Last year.
Other as Mark pointed out in Q2 of last year.
Other represented 23% of our.
Hundred 84 million in revenue, it's 19% of our 278 today.
So that other has compressed as a percent of the total partially because of what we talked about each of reverse home equity in deposits not fairing, particularly well in this rate environment. It's fairly understandable. There's nothing were concerned about other than reverse or something we're concerned about in those end markets.
And and on the organic traffic front.
We well, we didnt disclose the quarter will definitely can get that for you as a follow up if you'd like.
One number that I mentioned in my prepared remarks was that organic repeat customers grew 36%.
And.
And that repeat business is is is obviously all organic and is obviously all free.
As a.
Broader.
Thing that we're trying to do is not only not be able to reduce our paid marketing over time.
As you sign up for my Lendingtree, but also too.
Be able to reduce any intermediaries that we have to pay for advertising online.
Who obviously take a significant percentage so as we grow that my Lendingtree volume just flows flows right to the bottom line and my Lendingtree revenue this quarter was 17% of our total.
Lending revenue.
Okay sounds good. Thank you so much thanks, Cuba.
Your next question comes from the line of job Kelly from Oppenheimer.
Great. Thanks for taking my question.
Just going back to margins.
Can you sort of break it down into buckets in sort of like how much is it just on an increasing competitive environment. How much is it being driven by personal loan.
And then how much would you say are some of these business initiatives that are marketing into products with a longer payback period.
Sure.
Jed its JD I'll start there.
As we look across the business.
The only business, where we're seeing in competitive exchanges really rising.
Rising costs is personal loans were definitely seeing more competition there.
And.
So so that while we grew that 14% I think it's fair to say that we're not seeing the same contribution from it.
As we look across the other businesses.
We've seen some rising costs, but thats been unable to be absorbed by the market place on the other side.
The lenders in those scenarios are willing to pay for it and we've got good good.
Dynamics with respect to Rpls in those businesses. So we don't honestly the rising costs.
Or basically in personal loans and to a lesser degree in student those are the two businesses, where I would isolate that we see that that cost dynamic and we're working through that now as Doug points out.
Personal loans is the business that integrate that is most.
Aligned with our longer term platform strategy right of getting new customers and getting repeat customers. So we're going to continue to lean into that.
And we're not going to pull back on the marketing because it's core to our strategy overall.
So effectively what we're doing is looking at a business that is not delivering the incremental contribution. This year that we would have thought of at the beginning of the year. It was growing 50% last year at a very high margin.
And we want to make sure that that one we want to continue to grow that business for the strategic reasons that we mentioned, but two we don't want that to dictate the strategy in other products. So for instance in mortgage we're trying to take market share in a good market environment. The mortgage business should not have its strategy impacted by personal loans and that's we're really trying to stay true to what is the right thing for each individual business and then also true to the longer term strategic goal of growing the platform.
And.
And then I guess following up on personal loans I mean, this quarter was your toughest comp.
How should we view that business in the back half of the year and then on the new mortgage experience can you just give us an update on how the consumer throughput is trending.
Sure.
Let me start with the personal loan question.
We just we started to see the dynamic that Doug talked about in terms of.
In terms of banks coming into the personal loan space that really began in the fourth quarter of last year.
In earnest.
It has continued throughout this year.
As a result, we definitely are seeing rpls across the business the lower.
The that's fine we eventually that market will sort itself out we're going to continue to grow market share in that product and yes, you're right. This was the most difficult comp for us throughout the year, but we have confidence in that business.
For the back half of the year, we just are going to accept the fact that it's probably operating in a slightly lesser margin than we've historically enjoyed there.
And on the on the new mortgage experience.
In terms of throughput.
I am not going to give you everything just from a competitive standpoint, but I can tell you some things.
One what we're doing as opposed to in the past, where I've said, they were putting X percent of our.
Mortgage traffic through this.
Different thing over here than over here.
We're actually taking a a.
A different approach that.
Is working much better which is we're actually segmenting, where the traffic goes up based on marketing channel, which is a measure of intent and so we're just getting much and because of that we're getting.
Better data on which users should be where and what type of marketing and what type of form works with with different experiences and were also blending elements of our old mortgage experience with our new mortgage experience together, particularly in the CRM world. So suffice it to say there is a lot more traffic that is not being service via phone calls.
And two it's working for consumers and three it's working for lenders and four even on just a pure comparative basis. The monetization continues to improve and then the last thing is the customer experience that I met that I mentioned the latest NPS scores are so high that I want to re take them again.
Just to make sure but it's it's just it's great to see.
That thing get to where we are and then when you move to marketing.
Which you talked about the allocation I want to kind of drill down on that a little bit so first off.
In the core way that we have traditionally measured marketing. If you went back years, we measured it on a last click basis and we wanted to make sure that we were immediately profitable on the first transaction and we never and because of that we were a very disciplined about our marketing, but be what we missed where a lot of opportunities to go get more revenue because we weren't as focused on the backend CRM of driving repeat business.
So what we've done is we've gotten much more smart much smarter about our data and our and our revenue over time.
Two were able to put people into an immediate lifetime value product, where it where the alerts just work, which is my lendingtree, which obviously consumers like to so you move from last click.
To doing different levels of attribution and then you can either do it on the first transaction on a lifetime basis, and we are getting better at both attribution and tracking lifetime value.
So all of our marketing is profitable, it's just a but now we are loosening up a little bit.
To say, it's okay to make money over a few months, we're not yet ready to say, it's okay to make money over a year.
So.
Jim on the gas.
But that could happen and when that happens it will be a great day and for all the shareholders out. There. This is actually a very good thing for the company to be doing because anytime we're able to lean into marketing it means that and lean into product development. It means that we're optimistic when we're cutting marketing, it's because we can't we can't clear those leads the lenders don't want them or were not being able to market effectively and the fact that we're leaning into it's a positive thing.
Sorry for the long answer.
That was great. Thank you.
Your next question comes from the line of John Campbell with Stephens.
Hi, good morning.
Hey, Jon Good morning, Hi, So to me it sounds like a lot of the kind of near term margin pressure that is mostly driven by voluntary spend and Judy I think you provided some pretty good color around kind of spend per channel, but I just wanted to better understand some of the moving parts with the softer Branson.
So first if you guys could just maybe talk to the broadcasting.
What that was in the quarter and then maybe expectations for the full year.
And then secondly, you guys had some pretty upbeat commentary around my Lendingtree you feel like Thats at a point, where you can really lean into the marketing now. So if you could maybe shed a little more light on the level and the kind of degree of step up will spend around my lendingtree as well.
Let me take the second one first and I'll tell you exact numbers.
I would say, we're not going to step on the gas massively this year.
We're going to continue testing, we're going to market more particularly around getting the app downloaded.
But we're not going to go crazy.
JD ill talk in a minute, we did have legit legitimate margin pressure in personal loans predominantly as JD said because that business.
Really grows a lot off of lifetime value and CRM. So as you try to grow with incremental marketing, obviously that happens it decreased margins, but on my Lendingtree you could see as I, let me drill down on that one a little bit more too so.
Overtime, particularly once we do step on the my Lendingtree marketing, you'll start to see us talk about subscribers our members and we'll be talking about new subscribers. How long subscribers are staying on what is our revenues are for a subscriber and what is our cost to acquire and those will be the types of numbers that were going to be talking about like you do with other.
Subscriber member led businesses and all of those things and were and obviously engagement all of those things are moving in precisely the right direction and I can't wait to like unveiling, but we can't for competitive reasons JD on your margins.
John on the offline.
In brand spend it was a total.
8.1 million of which 6.4 was on Brent on TV, Okay. So.
So thats the breakdown there now obviously thats considerably higher than where we were a year ago.
We're happy with the results those in the quarter. They were primarily focused on mortgage and on personal loans.
And as we look at the back half of the year, we will continue to.
We'll continue to spend money there it will be mostly testing in my lendingtree.
It's probably where we'll spend more more dollars.
But.
As Doug pointed out as we think about incremental marketing investments in the back half of the year, it's not necessarily just if you see us spending on TV I wouldn't I just wouldn't think about it that way, we're actually seeing greater diversification in terms of channels that work.
Channels that have been success stories for us this year.
Social which was a real struggle a year ago has been a really good story this year for us display in certain pockets has been a good story for us and so the more we can diversify the overall marketing mix and find success, there and Nash it up with our business, we're going to do that I would just continue to emphasize what Doug was talking about is the way that we're thinking about this in terms of new customers and organic.
That it organic repeat that is really the formula that we're focused on.
And so as long as that organic repeat is growing faster than our new customers. That's obviously core to our strategy and we're seeing great signs of strength there in June and we're going to continue to lean into that.
In the back half of the year.
Sounds good and then just one little quick add on I, just want to make sure I understand the vernacular here, Doug I think you've mentioned my Lendingtree, 17% of lending revenue is lending revenues is basically everything outside of insurance.
Yes, yes, okay, great. Thanks, guys.
Your next question comes from the line of Eric.
Wasserstrom with KBS.
Great. Thanks, very much hi, how are you.
You've you've provided a lot of great information about end market conditions, but if I could just follow up on.
On one.
What's the current dynamic within the card space, obviously, the I think the key dynamic over the past year with sort of the transition to rewards cards and how that influenced you guys but.
Any update on what's occurring in that product area.
Yeah, Eric It's obviously, we're encouraged when we look at the bank results and how the consumer and the card businesses are doing for them I will say, we're definitely seeing.
We're definitely seeing a better spend environment than we were a year ago.
There is not a clear back to balance transfer movement, that's not what's driving this that would be incremental to the gains that we've had this year.
What we're seeing.
Is basically the benefit of us being able to deliver more volume for issuers and getting into better pricing tiers.
So a lot of our strategy. There is clearly a better end market in card give or spending issuers are spending money and thats, great, but I think where we're benefiting is basically just increasing relevance for them.
And we've talked about efforts to integrate better I think we'll end the last quarter. Some of this was I mean, well that's that's really the feedback loop that we try to build with all lenders.
And increasingly in card, we're trying to automate more and more with our lenders and I think you're seeing the benefit of that in the quarter.
We're just really happy with the progress the execution in our card business.
But I think some of it is unique to lendingtree in that were just taking taking market share and increase increasing relevance for those issuers.
Great and then if I may just have one follow up just sort of stepping back.
Over time, you guys have often articulated this concept of.
Compressing margins through accelerated marketing to to realize the benefits over a longer term horizon.
But is anything that's occurring now.
Does that does anything that's occurring now change sort of your longer term expectation about the run rate profitability of of Lendingtree in terms of EBITDA margin.
Jamie can answer it as well and we give you my opinion I think hopefully it'll be the same I think the answer to that is a very clear no.
On the downside over time, it may be better on the upside and.
And Thats, just because you've got your marketing costs upfront in your product costs upfront, but as I said before Weve got cohorts that are making money over 57 months. So since they signed up in like the.
The paleo with lithic days of.
Of my Lendingtree, many years ago was over four years ago. So.
The fact that we're seeing continued engagement just gives us a lot of confidence that once you get a member we can continue to engage them over a long long period of time in a way that delights them and if we can get somebody and get them paid off and from marketing based in a year and they are going to make money for us for the next four years like that so.
Unifill thing.
Yes, I would just say Eric is that overtime clearly if we can if we can migrate to a platform orientation lifetime value orientation that structure, we will change our margins to the benefit that is very clear and were were finally really seeing signs of that in order to see signs of that you've got to see the combination of effective marketing and effective product, meaning you got to get people in the door, but then you got to keep them and you got to get him to repeat and we're finally seeing signs of that so actually in a quarter in which you are seeing the impact of one business, one really just kind of and actually it's really the personal loans and then as Mark pointed out beginning of the call kind of the typical contribution from other not being as strong.
In a quarter in which you are seeing that way on our margins in the short term, we're actually ironically seeing signs that should point to a better margin profile over time.
It just can take time to play out and you're not going to see it in any one given quarter or year. Ultimately we've got to grow that member base and we've got to grow that repeat traffic and we are seeing signs that we're seeing signs of that and we're going to lean into that by the way a very good analogy and I could and I can put a person's name on it not that easy only want to does it but when we hired so she'll Sharma as our head of product for match.
Part of that was we viewed the go forward strategy very much in the analogy of of how match evolved.
And grew massively over time and can be continued to grow the category.
By getting subscribers being very smart about pricing being very innovative about the customer experience and using a lot of actually the same product features.
That you do.
In a logged in experience.
On a platform like match some of those same things correlate to the lending world and.
And as I said, the shields not the only person, but thats the business model of of a mylendingtree, which is get a subscriber.
Make them happy to engage with them and delight them over time by the way the other thing that I would add that the.
Has a dog that hasn't begun to fight yet is taking our great content business, which today is used to go generate customers into the.
So called lead Gen business, and focusing that as well inside of our subscriber.
Base to engage them with great content that relates to their financials to their exact financial health we haven't.
That's one of the things on our docket.
And that too will that and many other things, we'll just continue to grow that.
Great. Thanks very much.
Your next question comes from the line of Mayank Tandon with Needham and company.
Thank you good morning, Doug and JD, if I could just dig into insurance a little bit more could you talk about growth by category in terms of how much is auto and what are some of the emerging areas like health care and.
Renters and commercial contributing to growth and also just in general the outsized growth in insurance is that a function mostly of just accelerating spend shifting to digital channels by carriers or is that also a combination of some share gains versus your competition in the market.
Sure, It's Jamie I'll start at a time when we at Investor day, when we talked about quote Wizard.
We referenced 79% of what was their businesses in auto.
Healthcare is clearly an area that will grow.
But the general composition of it today is still the same meeting its primarily auto.
Doug referenced some BD interest on the part of carriers, we are sort of uniquely positions to help them.
With unique marketing propositions.
Because of our mortgage funnel and because of our proximity to home.
And consumers in that regard. So we do think that home will grow, but it's not going to be something that manifest itself really in a material way in 2018, and and health care will grow in 2019, but in the Grand scheme of things. The auto business is growing so nicely that you're not going to see it really shake out in the numbers in a discernible way that's materially different than a than when we bought what wizard last fall.
In terms of.
What is driving the growth.
There are two real things going on here one is it's absolutely what you referenced meaning the shift to digital spend.
And you're seeing that with carriers and as we've talked about in the past.
The most.
Forward leaning of those.
Historically has been progressive I think what you're seeing is other carriers catch up with them or try to catch up with them in terms of benefiting from digital marketing channels and so relative to when we were looking at what Wizard a year ago, you just have a healthier marketplace, where its not as dependent on progressive youre seeing other carriers try to step up and compete with them and we are the beneficiary of that.
I think importantly, as Doug pointed out the team.
Is executing exceptionally well in a very strong market, but you basically have you want to compare insurance to credit card, you've got a shift from offline to online and digital spend that is going on.
Much as it did in card card is just a more mature market.
And you're seeing that and that's really where we're seeing great.
Although it is the only I'd only add on a couple of things one you referenced a category, which was medical that is one for example, we're very small in and could be a very great growth opportunity for us and you can see the size of some of the other businesses in that category and.
There's there's no reason, we can't play to in some ways insurance.
As almost better.
For a transition than even mortgage and and some of the other products and that's because there's been such a legacy for the past decades of insurance companies spending massive marketing dollars in a very very direct marketing driven way to go acquire new consumers that does that is not necessarily the same in in for example, the mortgage space at the same level and the insurance companies have also built.
All be either their agent networks or their in house brokerages in their call centers.
They've built.
Conversion machines that that really work so they know their numbers if it works they want more of it works they want more and they see the world and a very direct marketing way and so.
If you treat them well you give them profitable volume and you treat your customers well. There's no reason, we can't grow the heck out of that and then as JD said you married up with Lendingtree and then the two just add more to add more fuel to fire.
Great. That's very helpful color. Thanks for the details.
Thank you.
Your next question comes from the line of Chris Gamaitoni with Compass point research.
Thanks for taking my call.
As you are more move more into the.
Lifetime value concept through my Lendingtree thinking noted, 60% my Lendingtree.
You just personal loans.
I was wondering if you've done analysis studies on how apical pull that borrower base is too.
Other.
Other financial products like do they translate well into the demand profile for credit cards or for mortgage loans.
Yes.
Yes, I mean that is.
It's it's honestly, it's everything so.
You might come in through his fruit through a personal loan and you sign up for my Lendingtree and you typically.
We'll as your credit score improves the typical path of those borrowers is that they refinance those personal loans might come in for a student loan re Fi and then over time, you want to buy a house and then youre going to get a mortgage you might come in for a mortgage.
Refinance and then now you're going to get alerts to when it's time to refinance again like you don't need to think about it. We just say would you like to save money with his lender click here and and and the refinance process moves on its a.
And so it's really across the board across all the different products and then.
Now with expanding it into financial health it brings much more vividly.
Into the deposits business, which we haven't really.
In begun to fight on that one yet on my Lendingtree, but talks about your assets and then.
If you use it to input sort of net worth data et cetera that opens the door to starting to do investment type products.
And or like a robo advisor for example, so theres lots of opportunities there to add on products in there.
So Chris the only thing I would add we did James Your question did we do a study yes. The we did a study on our user base.
And who are typical customer is.
In the back half of last year that actually that study in some ways influenced.
The.
Essentially the evolution of my Lendingtree to be about more than just a free credit score.
And that's why we're taking this financial wellness orientation, which we think is differentiated right, we're trying to but but.
In your question as you asked about personal loans Theres just.
Part of it it's not that we the only customer we want is the personal loan customer. It's the nature of the repeat nature of that product.
Drives reengagement with Lendingtree.
And at the NPS score is high as well and it's a very response oriented product. So its been very helpful to us as we've tried to demonstrate value with consumers and borrowers.
To drive them in and get them to see the broader suite of products right. So it's a very good initial product.
And that's that's why it's been very helpful to us.
That's that's super helpful and I know you won't give us exact details but is there any way to think about.
Margin mix between the products of the revenue mix shifts differently over time.
Sure.
Yes, I would have done typically is given in orientation is to like highest margin to lower margin than we've typically said that mortgage was one of our lower margin products overall.
And personal loans being of the big products in the other category that was mentioned at the beginning of this call those are products, where we enjoy across the portfolio very high gross margins very high PNM right. Those are in some cases, 50 and 60% margin products.
Among the big products personal loans is the highest typically we've said that mortgage is the lowest in light of the growth initiatives in mortgage right now it's fair to say that in Q2, we operated in mortgage opportunistically and deliberately at lower margins than we would historically as we're trying to garner market market share.
But thats the as you go through them I would say personal loans.
Insurance card and then and then mortgage in terms of high to low of the big of the big products from a gross margin perspective.
That's super helpful. Thank you so much.
Of course.
Your next question comes from the line of Stephen Sheldon with William Blair.
Good morning.
One of that follow up I guess on that last question. I mean can you just maybe help us think through the impact from the revenue mix shift away from personal loans on the profit guidance.
One how much is your revenue outlook for personal loans changed relative to prior guidance.
And then you talked about just a little bit there, but today at a high level, how how big of a differential is there between the margin profile and personal loans versus some of the other categories.
Sure, we're probably not going to disclose individual business margins even so.
Thats not one that we're willing to answer for competitive reasons, I think you probably understand that.
In terms of the growth rate personal loans has grown to 50% last year, we went into the year.
Hello.
We went into the year expecting revenue growth in the 30% to 40% area.
For personal loans, obviously, we just went through quarter, where it grew 14% that ripples through.
And so we're going to continue to lean into that product by the way we have very good evidence that in both Q1 and Q2 were taking market share in that business.
And so that is.
That is good on the lender side, but it's also good on the.
On the.
Member orientation of Lendingtree as we've talked about so we're going to continue to lean into that business.
But it's going to grow less than.
The overall business, that's going to drag on margins that influences our guide to a certain degree we're trying to make sure that what's going on in that business isn't.
Making us make bad decisions in other businesses, where we see great opportunities and that's that's really what you're seeing with the guide.
And we've hit on some of those before the one thing to add here on personal loans JD hit on the fact that personal loans is our biggest.
CRM slash repeat business and.
Also very prominent.
Business inside of my Lendingtree because of that if you look at the quote unquote margin profile of personal loans you have obviously paid marketing to go drive in those customers, but you're also benefiting the personal loan margin from all of that free traffic that is coming in through repeat business. If you. So thats, obviously, a 100% margin and then you look at the at the paid marketing side and that is obviously a different margin.
But the reason.
If you think about personal loans that growth that we experienced is actually.
Shows what we can do in these other businesses. So the reason personal loans was able to grow so fast in the organic and repeat business categories. A couple of reasons number one.
The lenders had a great conversion products. So when we send somebody to prosper lending club et cetera.
They are able to convert very easily online too there is obviously a great customer.
Proposition they can save money right away and obviously our alerts work.
Very well their work well there worked very well there as well so.
As we have and then third we're better at CRM and we're better at alerts as we get better at doing that and the other verticals.
That is going to add to our organic volume across the board.
Got it that's helpful.
And then I guess on insurance, obviously, great trends there this quarter and you gave some color earlier. It was curious if there's been any notable change in the type of leads that have been in demand with insurance participants between.
Clicks forms and calls and I'm asking that in the context of kind of their level of sophistication with being able to convert consumers.
That are earlier in the funnel versus.
Mostly paying up for for the most likely to convert leads.
Yes, well the unique thing about insurance that was the case when we did the diligence unquote Wizard and remains the case today is that different carriers want different products. So there are some who value clicks more than leads.
There are some who are integrating increasingly integrating with us on calls.
I don't see anything in Q1 or Q2 that tells me that thats changing there is not some great trend line there I think in the clinic space.
That was probably most.
And in the CLEC space, we probably just see more competition and Thats.
More competition for our volume.
Which is which obviously we benefit from.
Because that's a bit in the marketplace and so its probably most profound in clicks, but honestly the growth in insurance is diverse across.
Great. Thank you.
Thank you.
Your next question comes from the line of Matt Schindler with Bank of America.
And that.
Matt Your line is open if you're on mute. Please unmute your line.
Sorry about that.
I think all the quarterly oriented questions have probably been AFE at this point, so I'm going to go into a larger theme oriented question.
Doug can you walk us through.
How.
In an environment, where rates seem to be coming down.
Or at least or talked about it as such when rates fall.
How does that fall affect your business in each of your main categories of lending revenue.
And specifically.
What's the real timing because obviously if the work is it falls quickly organic goes up at banks and they don't need to but eventually the total volume is high so they do need you. So can you walk through where the timing across the different products flows out.
Sure and I'll, let me at mortgage and the.
And then some of the other one mortgage is obviously the one with the most profound impact.
Because the refinance business is so is so tied to the other ones are less sensitive to rates quite frankly, and so let me tell you had mortgage.
In two different phases in the good old days of about two years ago and earlier, we used to say that the mortgage business.
Basically offset each other at the VMM line, So we would say that as rates fall.
That.
Lenders don't need you as much so they pulled back on their bids our marketing costs go down and the two things effectively even out.
And then as rates go up our marketing costs go up on a unit basis, but our revenue per unit goes up so you see higher revenue lower VMM margin, but high still growth and adopt VMM dollars line and Thats the normal trade off in the mortgage business that we've talked about for years that happened right up until probably be a year ago. When lenders started taking capacity offline and I've always said like that relationship holds until they.
Take the planes are.
Out of the air they're taken they're shutting down a factory et cetera, when capacity goes offline.
At some point as well at some point as rates fall, which we're experiencing right now you need the lenders to put the capacity back on so you have this little sort of momentarily momentary squeeze where you're getting a lot of volume in.
But you're not getting the throughput that you experienced lenders and then they so they're cutting their bids more dramatically slowing down on their volume.
That's why the transition over to more to mortgage experience that's not.
Phone call intensive is incredibly important to us.
Because it opens up a lot of capacity at the lenders.
I wish we were right now able to be 100% there because we would.
The absolutely crushing it in this environment that will open up it opens up massive more mortgage capacity.
But we're not there yet.
And.
Although we are getting there.
But.
And so thats how it works so right now we're waiting for lenders quite frankly.
To get conviction that rates will stay low for some period of time and rehire.
We're seeing some signs of that.
But it's not.
Widespread and then the other thing that happens in your in your marketplace you have a number of Len very large correspondent lenders.
We all know who they are you can read about on our 10-Q those people have maintained their capacity and then they win sort of a disproportionate share through that.
Normal mortgage experience, but that doesn't help your.
Your bids if you're if you don't have all of your lenders opening up effectively so thats, a long winded way of saying that normal relationship doesn't hold until lenders put back on their open up their factories and put the planes back in there again.
Now the other part.
So on JV.
The only other part of your question you were asking.
As Doug explains right is a multi quarter multi year phenomenon with respect to capacity rate essentially you build up capacity over many years and then it gets cut out of the system very very quickly in a tough environment for for them as we saw last year.
You also asked however, about how to how it impacts other.
Other businesses for us right so exactly asleep.
In a in a declining in a rapidly declining rate environment.
What we've seen in deposits as an example is not only are the deposit rates not as attractive as they were last year to the consumer but the bank interest in acquiring deposits has greatly diminished right so that business slows down not surprising.
In a rapidly declining.
Environment.
Home equity probably suffers relative to refinance refinance is what the is what the traditional base of mortgage lenders.
Market aggressively in a rapidly declining rate environment.
Because it's probably the easiest sale for them and prop and path to profitability and from a consumer standpoint.
Don't take out a second mortgage if you can refinance your entire first mortgage at a really low rate you'll save more money. So and then in card.
I would say, we haven't necessarily seen as much of a discernible pattern between rate and interest in driving card volume.
It's been much more a function of what the banks want to do on the consumer side of their business to a bit more independent of a break.
Despite the fact that those are loans right at the end of the day, we're seeing a declining rate environment, we're seeing banks certainly want to grow their card portfolios. This year.
And then away from that I'm, just trying to think what other businesses.
Our worth pointing out.
So basically personal loans.
Well in in personal loans Theres obviously.
I think what we're going through there.
Is more a function of competition in the marketplace and banks stepping into personal loans, which is more of a multiyear thing I wouldn't necessarily think of it is directly correlated to the rate shift this year.
And there's a nuance to that too there that's really important as you shift into mylendingtree.
Some of that some of you the UK companies similar to us have experienced.
Declining.
With competition almost competing themselves out of margin in the my Lendingtree scenario you can help your line.
By helping them to preserve margin by giving them a savings or what you're seeing in personal lines as JD said in some ways.
The increased competition.
Actually hurts your monetization.
Because you've got new lenders coming in who can profitably make loans at lower price points and then they pushed the higher rate guys out of the market.
And.
They can they bid lower.
Now add because theyre doing lower margins and obviously they can.
And they can still close the business. So that's great for the overall health of the business. The other thing, though that have but it also can pinch margins in the short run which is why you that lifetime value. The other great thing about declining rates.
Lender health across the board is fantastic. So mortgage companies are making money again credit card companies make more money et cetera, et cetera, et cetera over the long term thats, how they build that capacity.
Great. Thank you.
Thanks, Dan.
Your next question comes from the line of Kunal Mccarthy with Deutsche Bank.
Hey, Thanks for taking my question.
A couple if I could one click through my Lendingtree and a great and not have to do much and good Victor.
In terms of demographics of the my Lendingtree base, how do you see.
So like Prime subprime and also had done to like age group. So what does the it's finding large how does the my lendingtree based kind of breakout.
You do by age.
Very very good question and.
I'm.
Unfortunately, well or Fortunately, it's literally the same as the lendingtree demographic because.
No probably 85, 90% of our traffic is coming from people, who sign up through our normal lendingtree form. So it's everywhere, we can profitably market any other loan product.
And so is every state every geography every every credit score.
And I used to say and it is true to it breaks down just like the us population.
And.
So and I just got a statistic here. It is extremely widespread but just for example, 20 and Thats probably as Bob do out of this population not 25 to 40, aged 25 to 40 is 40% of the population would probably breaks down just like the online population.
I'm guessing August AD tech knowledge that recognize we've not.
Weve not spent.
Marketing dollars aggressively against it so it's really grown through opt in in other lendingtree forms.
As we spend marketing dollars on it or as we spend in the App store for instance, it will likely start skew a little bit younger.
Because it's going to be a younger demographic responding to an app download.
But today its going to mirror the industry user base.
To a degree just because that form form fill often.
Great.
And the follow up then is like but as you look at your marketing spend and especially given the younger demographic on obscures away from TV and more into the social and digital and what have you. How are you thinking about marketing strategy going forward.
So thats a great question first off we do all types of marketing.
But recently in mortgage for example, we are having very very good success with.
With.
Social and display marketing for example, so I think our marketing.
Mix will continue down that path. The one difference that you will see us is moving much more to download the lendingtree app and well on pitching please tell all of your customers to go download the Lendingtree App and then they can get a good read on how well we're doing.
And that will also help us all generate more revenue.
So it is a fantastic product.
It works, great and I think I think you're going to love it just like everybody else does.
And that's the future so instead of most of our traffic obviously as mobile like every other Internet company.
But the nice thing about the App also is you.
I don't have any more paid marketing so youve people have heard me say for many years that one of the.
You know happy frustrations you get in the World as you get to go buy your own brand name inside of search engines for people who.
Type lending tree inside of a search box instead of into a brown ended into a browser address and then we get to pay tens of millions of dollars every year.
To go get our own traffic back.
As you've got an app, obviously, we don't need to do that.
Great. Thank you.
Your next question comes from the line of how NAND coarse sand with KBW.
Hey, good morning, Thanks for taking my question.
Just three quick questions here for you has an insurance revenue.
Goes up how much capacity do you have to handle that the amount of traffic before you invest more and are you at that capacity now.
Second question is how much are you expecting education loans.
To increase in Q3 as far as the guidance that you're providing.
Since those.
Peak quarter.
And lastly on the mortgage are you seeing any lender capacity increases that you were referring to earlier in your comments is that happening yet.
I'll take one and three and give a two to JD.
In terms of insurance capacity. The nice thing. There is you don't have we don't have capacity constraints either at our carriers or at the company. So that is a highly highly sort of why I referred to before I guess, the one part I and this is a it is a.
Highly automated and online process and.
The infrastructure too.
Take customers from Austin get them over really doesn't require much in the call center support isn't a big deal.
And quote was or like what was it has plenty of capacity to scale and our carriers have a lot of capacity to scale and obviously we have new.
Categories to go into on mortgage capacity, yes.
We are slowly.
Seeing lenders opening up capacity, we are definitely seeing lenders moving into our new mortgage experience, which opens up capacity on that so that is a big win for us.
And.
Yes, it is tight.
However, it is coming back and after 22 years of doing this I can pretty much value.
It will come back.
More good these mortgage companies operate with an eye towards profitability and they know the times that to make money and the times that they got to tighten up and.
I am not hearing any pessimism about the about the mortgage business going forward because right now.
Margins are coming back there.
Keep in mind. These got many mortgage companies have lived for over a year of losing money.
And a lot of these things are private companies owned by.
Successful entrepreneurs and.
They're refilling the coffers and then I'll step on the gas again.
On the second part of your question you referred to the education loans, the student business just for everybody's context.
We.
Previously prior to last year, we acquired student loan hero, we had a very third quarter dependent student business and to give you. Some context, while we do not break out the student business, it's part of that other category.
The third quarter last year represented 65% of full year 18 revenue and that's inclusive of.
Of.
Student on hero, which was which helped us in the fourth quarter of last year. So recognize that prior to student loan hero are our student business was basically a third quarter business Didnt do a whole lot in three out of four quarters of the year.
What's student loan hero has done for us is diversified the business throughout the year, where theres at least a business. There in Q1 Q2, it's also a pretty good indicator of Q3.
But for for conservatism.
For in terms of modeling year on year growth in student.
We've we've modeled it very conservatively in light of some of the cost challenges that I mentioned earlier.
And in fact that that implied growth rate.
I'm not going to break out specifically, but at the mid teens growth rate that we're expecting in student year on year.
To give you some sense, we've modeled that very conservatively in our view.
Our revenue perspective.
So thank you very much.
And yen student I'd, just add one thing student was.
Third quarter was was 65% last year, we expect it to be roughly 50%. This year of revenue. So what we've done is insulated ourselves from that third quarter dependency through the student loan hero acquisitions.
Thank you.
Your next question comes from the line of Jamie Friedman with Susquehanna.
Hi, Thanks for taking my question I wanted to go back to something you said in your prepared remarks.
About the mix of the personal lines.
You were commenting on the some of the characteristics between prime and.
Subprime and the one in the middle mid Prime.
Yes, so could you.
What was that about like how did how is that impacting how is that mix shift if thats, what youre, saying impacting.
Lendingtree.
Yes, So let me try and then Jay you can add on.
So.
Early days of personal loans lenders move in mostly online platforms as we all know the so called.
Marketplace lenders.
And they are in the prime space markets, not necessarily that competitive because theyre competing against the age old personal loan lenders, who are mostly branch based margins are high et cetera, et cetera, as that market has developed and we've have now.
I don't know the exact number of lenders, but I'll probably have it here in a minute.
You've got more and more lenders and you've got more and more traditional financial players as traditional financial players can come in.
That the market is more developed about 40.
Personal loan lenders, so those banks move in as JD and I talked about.
They can price lower and.
Therefore, their pricing lower their operating a thinner margins they've been the last for the volume, but because they close it and we give the best deal to the consumer obviously they start to win what does that do that pushes some of the other players down the credit spectrum, but they have to do that as I said intelligently as they move down or they have to move into smaller loan amounts, but they have to move into the periphery of where.
The market that everybody can just underwrite easily.
And in those areas and they have to learn those jobs and they have to make sure that their underwriting models work et cetera, et cetera, et cetera, and typically those operate on a lower margin for them.
Now over time as subprime gets better that will be an emerging new markets, but that basically is what then reduces your revenue per lead on personal loans, which then as I talked about the two types of marketing the free marketing and obviously the paid that inhibit your ability to go step on the paid marketing gas. So then the way you grow personal loans overtime is through repeat marketing through my lendingtree through our CRM platforms.
And and through cross sells from other loan types and Jamie the only thing I would add to that is compared to mortgage where we get paid entirely on match fee.
Okay everything is upfront and so then the match fee as a function of conversion rate rate, you're only going to pay for a match if it's converting for you.
And Thats a much more direct relationship with conversion rates right, we know what what it's worth to them.
In personal loans, we have across those 40 lenders.
We have we obviously would we like some simplicity in terms of pricing models, we would.
But in personal loans, we have many hybrid contracts you have some lenders who operate with us entirely on a cost per funded loan basis.
Okay. So they on a close rate.
Okay. So they are only paying us on the Bakken you have many lenders who are paying us an upfront fee in the backend fee. So.
Alternately think about subprime for a second.
If the early entrants in that market are now operating in mid in subprime.
Clearly the conversion rate.
In mid in sub prime is going to be lower than in prime where they are inclined to close every one of those loans that they can see.
So ultimately conversion rates going to influence it just not as clear of a reaction like we have in mortgage and you have to recognize that there's a back end in that in that in that business. It makes it a little bit harder to model.
Yes, no that's.
That makes sense and then I wanted to follow GDP, what you had said.
In terms of the.
Card market.
I didn't hear you use the language that I heard in the past about.
Reward versus balance transfer narrative, where are we in that journey now what are the banks looking for in a low rate environment.
With that dynamic thanks.
Sure absolutely and I think maybe was USIS question before where he asked about this.
We've not seen some massive pickup in balance transfer. Okay. So that was what was driving the market in 17 and.
In 2017 was clearly insignificant as evident with balance transfer.
We've not seen that so that would be incremental to the growth. We're seeing now we're just seeing more interest in working with us from lenders now to be clear from issuers to be clear.
We also are well aware of the fact that some of our competitors in this space are also doing well.
Okay, and the card market, you're definitely seeing interest in growing card base, among among issuers, but we're not seeing some.
You know everybody go student body right towards balance transfer cards that would be incremental to the growth that we've seen thus far.
Got it okay. Thanks for the color guys.
Thank you.
And your next question comes from the line of Rob Wildcat with Autonomous research.
Good morning, guys I wanted to go.
I wanted to go back to the discussion on the marketing strategy as you can to shift the hurdle from.
Immediate profitability to profitability over a few months how much does that expand the base of consumers are borrowers that you are willing to target.
Uh huh.
I don't have a specific number for you except obviously, it's it would it's more.
Because you're you're.
You have a higher.
Expected value or expected revenue.
So it's definitely higher.
And that helps to not only offset some of the other pressures we've talked about but obviously expand on JD to have anything more specific on that I really don't Unfortunately, I don't have a target there.
Over time, as we will align more product with my Lendingtree recognized that about 60%, 55% to 60% of our my Lendingtree.
Revenue is attributable to personal loans over time as we expand more products. It will clearly expand the base of consumers that will be logical to market too.
That's one of the reasons why we're so excited about insurance overtime.
But I don't have.
Target for you there in terms of what level yes.
I'll make it a point to get you a follow up we'll definitely talk about the next quarter, we're going to what I want to we're going to find out is what is the expected value of a customer the first transaction versus over three months and what's the what's the percentage lift of that in terms of not only monetization, but the audience I know its higher I just don't have the specifics so sitting here in this room.
Okay, and then just quickly weve heard a bit that.
Sure actually leaning pretty heavily on AD words for customer acquisition.
Are you seeing any impact from that on your business.
Rob we're getting a bad signal on year end. So we heard you say Edwards as a battle, we earn so we should be ballooning, who leaning heavily and onwards.
Sorry, we've heard that the.
Direct banks or the neo banks are leaning pretty heavily on AD words.
Are you seeing any impact there.
Not really and and that's happened on and off over the last 20 plus years and that gets.
And back to why they'd rather be on Lendingtree. So typically if you're now it might have an app an effect on the deposit business or could theoretically have a visible impact on the deposit business.
But on the lending business sort of by definition, because a were great search marketers see because our brand has been built up and Google So well. So long we've got a very high quality score and therefore can can bid aggressively.
And then see because we can monetize better by definition than any individual one lender.
We get a marketing advantage. So if they go say great low rates for loans, they get everybody and then they turn down.
Half the people who come in and with Lendingtree. We can bring we can approve a lot more people and get a lot more people over to lenders. So we see banks move in and out from time to time in the good news is they usually raise the white flag and then joined the network.
Got it thank you.
Thank you.
Hi, I'm now showing no further questions I would now like to turn the conference back over to Mr. Douglas.
Thank you all for being here and what I think has been one of Lendingtree as longest ever conference calls one also say a welcome to Trent for his first Lendingtree conference call.
As well.
I just want to give us some context that many of you have heard before but for those who are new to the story was want to trace kind of some history. Beginning in 2008, we talked about how we had to rebuild the business around a search business. We had two one move our pricing mostly up front, except in the personal loan space too we had to put in dynamic bidding. So that we could see as conversion rates improved in Lennars got more efficient we got direct.
Benefit to that on our revenue three we had to build a great marketing machine and retool our entire marketing and then fourth we had to leverage our brand and be able to execute with online advertising. We have now done that and that continues to advance and that work continues to get better and we continue to become better markers and better salespeople. However in the background as we've also talked about and I've talked about today, we've been moving the business to more of a platform business and more or less of a subscriber business and you could not you could look at leading companies like Amazon and Netflix or you could look at any other subscriber business with the same dynamics. It's both an online logged in experience for all of our products. So once you get your offers you get them online. We engage you online even if you don't put in your personally identifiable information and sign up for your free credit score, but then if you do and you do give us PII then you move into our CEO .
Our EMS system, the alerts all the contact and customer care that we can give you and the content and surrounding yourself around every transaction. So expect to see in us in the future continue to migrate down that path. Many many successful internet companies have made that transition. What you are seeing what you've seen with us over the past. Many years has been a disciplined approach to our strategy being very clear idea, where we go making very strategic bets as we did with diversification, but making sure that we make the right moves in a very disciplined manner and that's how we plan to finish off the transition and then the rapid growth that will accelerate as this transition commences, but we know this we're tight on our numbers, we know exactly where we're going and I've never been more thrilled about the opportunity and where we're going and more determined that we can get there and more certain of the number of the numbers and the initiatives that are underlying.
What we're doing going forward and with that thank you for being here and we look forward to talking to you in three months.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.