LendingTree, Inc. Q4 FY2022 Earnings Call

Good day and thank you for being here. Welcome to the LendingTree Fourth Quarter 2022 Earnings Conference Call. At this moment, all participants are in listen-only mode. After the presentation, there will be a question-and-answer session. I would now like to turn the call over to your speaker today, Andrew Wessel, Vice President of Investor Relations. Andrew, please proceed.

Thank you, Michelle, and good morning to everyone joining us on the call this morning to discuss LendingTree's fourth quarter 2022 financial results. On the call today are Doug Lebda, LendingTree's Chairman and CEO; J.D. Moriarty, President of Marketplace and COO; Trent Ziegler, CFO; and Scott Peyree, President of Insurance. As a reminder to everyone, we posted a detailed letter to shareholders on our Investor Relations website earlier today. And for the purposes of today's call, we will assume that listeners have read that letter and will focus on Q&A. Before I hand the call over to Doug for his remarks, I remind everyone that during today's call, we may discuss LendingTree's expectations for future performance. Any forward-looking statements that we make are subject to risks and uncertainties and LendingTree's actual results could differ materially from the views expressed today. Many but not all of the risks we face are described in our periodic reports filed with the SEC. We will also discuss a variety of non-GAAP measures on the call today, and I refer you to today's press release and shareholder letter, both available on our website for the comparable GAAP definitions and full reconciliations of non-GAAP measures to GAAP. And with that, Doug, please go ahead.

Thank you, Andrew, and thank you all for joining us today. We are excited to provide earning results this morning, but first, I wanted to call attention to our launch of the LendingTree Win Card, our first product introduction in the reimagining of the MyLendingTree offering that was announced this morning. Today, the Win Card offered exclusively to MyLendingTree members who improved user engagement as the 2% cashback features only unlocked when card holders log into their LendingTree accounts. The Win Card is among the first cards to be integrated with our TreeQual product, and we are expecting approval rates to be substantially higher, which will also improve our unit economics and customer satisfaction. We have many new features and products like this planned for introduction as we move through 2023 and beyond. The focus of all of this work is to combine our market-leading partner network with the best-in-class customer experience. We believe the innovative products such as the Win Card, in addition to planned enhancements we are hard at work on, will make MyLendingTree the leading destination for our customers to shop for all of their product needs. Moving on to our results, in the fourth quarter, our insurance division posted excellent results. This can be attributed to initiatives from Scott and our insurance team for the employees to focus on higher customer traffic to help our insurance partners improve conversion rates. Because of this, we are able to capture increased budgets from insurance carriers while also reducing marketing costs. The team did a tremendous job executing on all of these projects, which led to margin improvements by a full six points from the third quarter. When carrier spending returns to normalized levels, we expect these initiatives will be rewarded with increased market share. Our home segment, not surprisingly, faces a very challenging part of the interest rate cycle. The firm’s commitment to higher rates to subdue inflation will continue to have a negative impact on new mortgage loan demand. Additionally, lenders are seeing lower conversion rates because there is less benefit to refinancing as interest rates rise. Of course, integration with our largest partners helped us to quickly pivot through sourcing cash-out borrowers who are looking to tap the substantial amount of equity by homeowners who delay. This year, we expect to cash in on our transaction with a bulk of our revenue opportunity at Home. However, our key growth initiative within the segment is to gain share in the purchase market by improving close rates for our partners. To the extent we see a pickup in purchase application rates as we move through the year, we believe this project will have a positive impact on our financial results. In our consumer segment, we saw throughout the second half of 2022 that lenders tightened underwriting criteria due to higher interest rates and the scoring effect they have on our economy. A stricter credit environment generally leads to lower close rates for our lenders, which reduces our revenue. Despite the decline in fourth quarter consumer revenue, we're able to grow segment profit by relentlessly focusing on unit economics. Our growth initiatives in consumer include completing technology enhancements for our credit card business, which we believe will help improve financial results going forward. In small business, we are also implementing technology solutions to automate the capture of applicant financial data, which will help better segment our traffic for our lending partners to also increase close rates. Additionally, we remain intensely focused on operating expenses. We recognize that as a key financial metric that is entirely within our control. The variable marketing model this company was built around is designed to avoid outspending the revenue opportunity available. Similarly, it is our job to properly manage our fixed costs based on our outlook for future revenue. We will invest in projects when we see an attractive risk-adjusted return. We're doing that currently to support the improved customer experience and our other key growth initiatives. However, we will also move quickly to decrease funding for parts of our business that are unable to meet return targets, evidenced by our exit from the reverse mortgage segment in the fourth quarter. A commitment to financial discipline will remain a key tenant of our day-to-day activities as a leadership team. And now, operator, I'd be happy to open the call for questions.

Our first question comes from Youssef Squali with Truist. Your line is now open.

Great. Thank you very much and good morning to all. So, I have a couple of questions. One, on credit card, Doug, can you maybe talk about what you're seeing there? It seems like you may be losing a little bit of share there, yet you just talked about planning initiatives to reverse that. Maybe can you speak to exactly what you're doing there to help reaccelerate that business in 2023? And then on this obligatory question about large language models and like ChatGPT and their potential impacts on the business. So maybe can you add a high-level talk about how you're expecting that to impact both the search for financial products, etc., so the demand side but also on the content creation side which could actually be a nice or potentially a good...

ChatGPT? Sure, so I got a card and I got AI/ChatGPT right, if I got that correct. So on card, and I'll let J.D. chime in here, I'll hit the high-level notes. With every credit card marketplace on the internet, you typically have what we refer to as a click-out model. What we're trying to do there with both TreeQual and the Win Card is to have access to the real underwriting criteria of lenders so that we can improve close rates. On AI and ChatGPT, we're using more machine learning and AI right now, although it's something that we would potentially want to look at. One of the key initiatives that we have is I talked a lot about close rates and if you dig into mortgage which is a long-cycle product, we need to improve our communication with consumers post-submit while lenders are making phone calls. And we have a lot of things on the docket to address that. But I would say AI is not one of them yet. But as it develops, I could certainly see that helping us improve our communications with consumers, but we're not there yet. J.D.

Just Youssef, let me focus on the first credit card question, which is really with regard to our credit card marketplace. We have a tech platform migration going on right now internally, we call that the Lightspeed platform that will make our page load speed faster. It will make partners interacting with us easier. It will make compliance, which is a very important thing in the credit card world, way more efficient and so benefit for us and for all of our partners. So we're excited that work is going on in Q1. We are on schedule with it, and it will probably finish sometime in Q2. Now that's not the only solution to the credit card business for us, and we've talked about this in the past. We are way too dependent on paid search. And so we need to grow other marketing channels. So we've got actually very good, we're very happy thus far with the progress in both CRM for credit card and specifically for SEO for credit card. Those are two focus areas for us in terms of expanding marketing. Why is that important? Because all of our partners in credit card need us to get to certain volume targets and if we hit those volume targets, we get paid more, and it becomes prohibitively expensive to do that if you are very dependent on one channel. So that's what we're doing in part. The other very important part of becoming more integrated with our partners and delivering them more volume is TreeQual, and so we continue to add partners there. It has been admittedly slower than we projected at the beginning of last year, but we think we are on the right track with the solution, because ultimately that is driving conversion rates, right? In a typical experience, a typical click-out experience, we redirect a consumer from our site to that of a partner, and it will get approved at call it low teens percentage rates. When we're talking about something that is pre-approved, it is converting at an 80% approval rate. So that's the definition of higher conversion; that is what we're focused on with TreeQual and there are different paths for TreeQual with every partner. Partners, what we found, what we've learned over the last few years, partners want to work with us in different ways, all of which we view to be an improvement over the current status quo. And so card, if you look at each of our big businesses, it is the one that needs the most work in terms of what I'll call the structural margin profile. As we fix that, we think we'll be able to take market share but take market share in a way that does not hinder our financial performance.

And the only thing I'd add to what J.D. said is on the SEO front as you move from our primary domain name for SEO being Compare Cards, and you move that content over to LendingTree, we expect that you have to take a dip first in your SEO traffic and then as that builds up we think the LendingTree domain will yield much better performance in SEO over time.

Thank you.

Please stand by for our next question. Our next question comes from Jed Kelly with Oppenheimer. Your line is now open.

Thanks for taking my questions. Regarding insurance, you mentioned in your shareholder letter that you are waiting for the carriers to respond. Given what some of your competitors have reported, it appears that carrier spending is increasing. Could you discuss the expected recovery trajectory? Additionally, can you clarify the unit economics with Win Card? Thank you.

Yeah, hi, this is Scott. I'll start on the insurance first and then throw it back to the rest of the team for the Win Card. But yeah, on the recovery of insurance, what I would call it and what I've been calling it is we're in the very early innings of the recovery, literally like the first inning of the recovery, it is happening. Revenue is going up. There's one large carrier in particular that is spending more aggressively than the rest in general. A lot of the rest of the carriers are still proceeding with caution at this point, but the conversations are more and more optimistic. There's more conversations, there's discussions of when and how the spending is going to go up. There's testing in certain states with the carriers. But we're seeing pretty good growth in our auto insurance segment quarter-over-quarter going from Q4 to Q1. And as we've been talking about, we've been focused on the unit economics and the BMD of our insurance business instead of trying to over-deliver on budget which the clients are practically asking for. We're focusing on the quality of traffic we're sending the clients and the profitability of that traffic. I think we're doing a very good job of that because carriers in general, even the carrier that's gotten a lot more aggressive at some level, they're still conservative and concerned about profits, very concerned about profitability and it's not just like pedal to the metal. So, I do expect the recovery to continue. It's going to probably take 9 to 18 months in total for the entire industry to be fully back at full board, but it is happening, yes.

Hey, Jed, this is Trent. I want to discuss the economics of the Win Card. We announced that we are collaborating with Upgrade, who will handle the balance sheet risk and credit scoring. We will receive a significant reward for each card we issue through our platform, along with a share of the ongoing interchange. We believe this will have a positive financial impact and contribute this year. However, it is primarily the first of many unique features that will enhance the value proposition for MyLendingTree and our members, driving engagement as we progress. Expect more of these developments throughout the year, and I would argue that this aspect is just as important, if not more so, than the immediate financial benefits we anticipate.

Yeah, and the only thing I would add to that is if you think about a normal credit card bounty in the industry, then you could apply higher conversion rates to it; your unit economics should be higher. We believe we can actually market this as a separate channel and proposition. Again, it's part of MyLendingTree. The 2% cash back which I referred to is unlocked when you're logging into MyLendingTree once a month where you're going to be seeing action that you can take to improve your financial life. We think that'll really help MyLendingTree in total.

Thanks. And just a follow up to Scott's comments about higher traffic. The insurance segment did have I think 38% VMM margins. I mean, is that the right way to look at the business in 2023 that you're going to have VMM margins above mid-30s?

Yeah, I would say as we look at 2023, we would like to keep those margins in the mid to high 30s. When the entire industry starts getting more aggressive and I'm talking about from the carrier standpoint, when everyone's back in and playing then you may start growing a little higher fruit on the tree where you're trying to get revenue at lower margins. But honestly in a lot of scenarios right now, that revenue isn't always the highest quality traffic and you have to run it at lower margins, and the carriers in today's market aren't really begging for it. So we're not trying to force it down their throats, so to speak. So mid to high 30s forever; like if you get into serious top revenue growth mode or all the carriers start getting really aggressive, that might change, but I don't foresee that in the next six to nine months.

Thanks.

And Jed based on Scott's commentary, I'd say implied in our full year guide is pretty modest revenue growth based on what we're seeing today, sort of in the mid-single-digit percent range. But we do assume that those margins hold in kind of the mid to high 30s. Obviously, that can evolve as the market evolves throughout the year, but that's our baseline expectation.

Thank you.

Please stand by for our next question. Our next question comes from Christopher Kennedy with William Blair. Your line is now open.

Good morning and thank you for taking the questions. Can you give us an update on your advertising initiatives that you started last year and kind of what your plans are going forward?

Sure. So the advertising we ran last year worked extremely well. It elevated our brand again in the right direction across all of our metrics. One of the things that we're moving, we're doing this quarter is implementing something we call multi-touch attribution, which uses data to allocate your marketing returns over the channels that you run. So right now we're not looking at any significant brand investment because of the unit economics and where they are, it didn’t make sense. However, with the Win Card, we do have Molly Shannon doing some fantastic videos that we can do and put on YouTube and other sites. So we expect to use more of that and do it much more inexpensively than running big ads on TV. And that will happen as the unit economics get better and demand returns. But I'm guessing that's going to be when interest rates start to fall a little bit.

Okay, very helpful. And then just an update on your capital allocation priorities for this year? And thanks for taking the question.

Sure, so on capital allocation, so one thing that we're doing, first off, I don't see us doing any acquisitions. Trent can talk more about just other things. We are very, very focused on EBITDA, cash flow generation, maintaining costs, and then investing. One of the things that we've done is we moved to a quarterly planning cycle where every three months we are prioritizing initiatives based on where we expect the returns to be. We're willing to make pivots inside of the quarter. Right now, we're working, as I said earlier, on improving conversion rates really across all of our products and all of our key initiatives, whether it be TreeQual, working on the post-submit mortgage experience, the purchase initiative, the Win Card, those are all aimed at improving conversion rates, which improves customer satisfaction and gives us more unit economics to market against.

Yeah, I will just add on to that. As it relates to the balance sheet, I mean, our primary focus is on deleveraging. Obviously, all of the things Doug just hit on are focused on driving near-term cash flows, and that is obviously an important part of it. But we are looking at sort of opportunistic ways to retire some of the debt on the balance sheet.

Understood, thank you.

Please standby for our next question. Our next question comes from Ryan Tomasello with KBW. Your line is open.

Hi everyone, thanks for taking the questions. In the mortgage business, I think investors are trying to understand where trough performance shakes out for the core purchase and refi products. So maybe you could discuss at a high level how you're thinking about the glide path for that business, what type of environment we would need to see for it to stabilize and recover from here, and if that's solely dependent on rates moving lower, despite refi or if you think the business has a line of sight to thrive in an environment where refi remains structurally depressed? And on the Home Equity side, given how much more significant that business has become, it would be helpful to understand how sustainable you think that performance is and perhaps how much more runway there could be for growth? Thanks.

Oh hey Ryan, it is J.D. Thanks for the question. It's a good one. Obviously, when we think about the year ahead, we want to be able to manage the business without making a huge projection on where the market will go. The point being, we obviously have been through an awful lot in terms of rate increases, and our partners are going through a lot. So one of the things that we track is the behavior of our partners. We watch loan officer counts at each of our partners because there was a ton of capacity loan officer capacity that was added in 2020 and 2021. In the Consumer Direct channel, which is the majority of our partners as opposed to retail, they tend to focus on refinance, and the environment like what we went through in 2022 and we will continue to go through is really challenging in terms of getting the conversion rates that they need. Fundamentally, as you know, from all the MBA data, there just aren't that many Americans who would benefit from a refinance right now. So our assumptions are that refinance for all of 2023 is de minimis, and that is why we are so focused on driving purchase. So how are we going to drive purchase? One of the things we've observed is that starting around the second quarter of 2020, our market share in purchase started to drop off, largely because of the behavior of our partners. They were focused on refinance because it converted and that was where they could make money. Critically, we looked at ourselves last year and said, okay, we've got to regain share in purchase. That's hard to do because purchase has a longer journey from when the consumer comes to our site to when they actually convert. One of the things we're trying to do is get better information on where that consumer is in their process. If they are late in the funnel, closer to buying a home or closing on a home, we want to know that and share that information with our partners so that it will make them convert better. So that is our fundamentally that is our strategy and why we're so focused on purchase because we are assuming that refi does not come back anytime soon. We have been thrilled with the performance of home equity. Two years ago, I don't think anybody in our company thought that the home equity product could reach the scale that it has reached. What we're encouraged by is that many of our lender partners are adding that product. So we're getting to real Home Equity. Historically, we talked about the fact that we had lenders who would buy volume from us of consumers interested in Home Equity and try and convince them to do a cash-out refinance. That still goes on, but it's just a lesser percentage than it used to be. The health of the Home Equity product is quite good. We're really happy with the progress that we've made there as a replacement. We obviously would love to see an environment where we're not so dependent on it. One thing we obviously focus on with Home Equity is they are smaller loan sizes than a typical purchase or refi. And so our unit economics there, that's one of the things we've been watching closely. The flip side of that is many of our lenders were recently having dialogue with lenders who think they can close more quickly on Home Equity since automation is helping the growth in that market, which is great. Our guide has been very conservative with respect to refi. We do think there's just some pure market share and purchases. It's always weak in the beginning of the year and it will start to lift in March and April. We want to be prepared for purchase season. We've assumed that we can hold the performance of Home Equity and we're just trying to navigate this home segment right now. I will say I had a lender say to me in early to mid-January, they said to us last week was our best week in seven. We were thrilled. But obviously we've seen rates jumped even since then and we have to kind of navigate this cycle with our partners. When you see a little bit of a give back in rates, we are encouraged not because all of a sudden there is some huge pool of refinance, but we know that it helps our lenders with respect to lender health. That’s why I think we're going to be in for that for the remainder of 2023. Our guide on Home is very conservative. We think that it's going to be entirely mostly Home Equity throughout the year.

And the only thing I would add to what J.D. said, just put a finer point on a couple of things. So just thinking about consumer behavior, you're coming in looking to refinance your entire $400,000 house, you've got a mortgage rate from four years ago; that's where the consumer benefit doesn't make sense to refinance for your home value has gone up. So a second mortgage makes a lot of sense. And you flip to the lender side. The last time we had Home Equity growth like this was literally like 2001 to 2009 until the housing market had a major correction as we all know. It wasn't until losses from lenders mounted in the second mortgage business until they pulled back, and now what we're seeing is a resurgence of that. As J.D. said, some of our Consumer Direct lenders are getting back into that business. It can be highly automated and oftentimes doesn't require a complete appraisal. So that gets re-automated. We expect that to help us out as refinancing your entire mortgage doesn't make sense.

Thanks, appreciate all that color. And then second one for me on the expense side. Can you put a finer point around the additional levers you have to pull from here pending how performance trends throughout 2023? Perhaps you could quantify a range of the additional costs that you think you could theoretically remove from the system? And also what type of environment we would need to see in order for those plans to start to be more seriously considered? Thanks.

Yeah, I'll start and I will let Trent provide some details around. I doubt we're going to give you a range, but I can tell you that we're continually looking at things as we move to a more project-oriented company with our quarterly cycle as I talked about. You are investing on a variable basis on a few things that you think are going to move the needle, and then everything else is fixed. We're taking a continuous and very hard look at that. Trent.

Yeah, just sort of continuing what Doug said. We've obviously taken some actions throughout the last 12 months in the form of workforce reductions and otherwise. Really, when you get past the advertising, which obviously, we'll continue to look at and optimize the advertising phenomena as well. But beneath that, the vast majority of our fixed expenses are our people and our technology stack. Some of those things are easier to move the needle on than others. But as Doug said, we sort of look at the body of work that we have going on and sort of the best that we're placing and the discrete initiatives, and we have to continue to kind of raise the hurdle rate as to what we fund and what we choose to invest in. Relative to the commentary in the shareholder letter, should unit economics and some of our core businesses continue to get tougher, we've got to raise that hurdle rate and draw a bit of a harder line as to what we're choosing to invest in. That's the approach that we're taking.

Michelle, can we get the next question, please?

Please standby for our next question. Our next question comes from John Campbell with Stephens, your line is now open.

Hey guys, good morning.

Hey John.

Hey, within consumer, I mean if we back out personal loans, credit cards, and small business, I think that implied consumer other was up pretty sharp, I think 28% year-over-year, that's now about a fourth of the net. So curious about what drove the strengths there and how you're thinking about that other business within consumer for the rest of the year?

We have observed growth in two key areas. First, our deposits business is seeing increased interest as interest rates rise, leading more customers to compare yields on checking, savings, and CD rates. While the overall scale of this growth isn't massive, it remains a significant opportunity from a macro perspective. The second area of growth is in our credit services business, which includes credit repair and debt relief. We assist customers who are interested in personal loans or other products, even if they don't qualify for those loans. We then provide alternative solutions like credit repair or debt relief based on their requirements, and this segment has seen some growth over the past year.

Okay, that's helpful. And then from a strategic standpoint, I guess also from a modeling standpoint, I saw you guys mention you are discontinuing the reverse mortgage business. I guess, first, why now? And then secondly, how much revenue did that contribute in 2022 and any kind of discussion on segment margin or VMM impact?

Yeah, John, that business was one that we stood up several years ago, and the opportunity there has been declining over the last several years. The regulatory environment there is not particularly supportive. To give you some sense, that was a business that was doing some 5 million in revenue for the last several years. So it's really not a needle mover when you think about strategically sort of where we are as a business. We're really trying to simplify the business in many respects and focusing on the core value drivers. That's one that relative to my comment earlier about raising the hurdle rate didn't quite meet it. That's just a business where we can streamline focus and resources into bigger priorities.

Okay. Go ahead, J.D. Sorry.

John, I will just get that. I mean, as Trent said, financially it's not a needle mover, but what we're doing is looking at all of our businesses and saying, okay, what's the natural margin in this business? What's the opportunity in the business relative to the partner set? And then what does it do in terms of burden on our fixed costs or impact on our fixed costs, right? So when we talk about our cost structure, these things are closely aligned. We're trying to make sure that we're in the right segments, where we're getting maximum leverage off our fixed costs. If there is a hidden cost aspect associated with being in a business that's not delivering a big impact, we want to redeploy those fixed costs or cut them. Obviously, the reverse in of itself, it is not a big impact, but it's indicative of the scrutiny that we're putting into the whole business.

Makes sense. Thanks, guys.

Please stand by for our next question. Our next question comes from Rob Wildhack with Autonomous Research. Your line is now open.

Good morning, guys. You called out some competitive factors on the credit card side, obviously a lot going on in that space, whether it's TreeQual or competing products, different business models, and now you even have a competitor paying out consumers who don't get approved. Bigger picture, can you just share how you think about the competitive landscape and positioning there and really the rationality of it all right now?

Rob, could you please repeat the last part of your question? I apologize, I nearly missed it.

Oh, sorry. Yeah, just kind of curious how you're thinking about the competitive landscape in credit card and really the rationality of it with all these different offerings that are out there?

Sure. Ultimately, we are approaching credit cards as a smaller part of our overall portfolio compared to our competitors, particularly Credit Karma. When they discuss guarantees for cards, they're referring to their light box preapproval process, which they’ve updated to provide a clearer assurance regarding card approvals. The motivation behind TreeQual is to enhance consumer outcomes, as we dislike the scenario where consumers come to our platform, only to have an over 80% chance of being turned down for a card. This situation isn't favorable for us, and while it suits our partners since they only compensate us for approvals, it doesn’t contribute positively to customer experience. TreeQual was developed from this standpoint. For our partners wanting to engage with Credit Karma, NerdWallet, us, and others, volume is essential. Collaborating with us without sufficient volume doesn't make sense. Thus, we are implementing a strategy to boost the volume we can deliver at a competitive rate by diversifying our marketing channels. TreeQual will primarily leverage our MyLendingTree user base. There are exciting opportunities to integrate TreeQual within our current offerings. For example, if a consumer is searching for a personal loan but their desired loan amount isn’t suitable for that option, we can present them with a card for which they are pre-approved. We believe this will enhance consumer experience and create additional volume opportunities, and we know we need to improve in this area. Regarding competition in the credit card sector, it’s interesting to note that it remains a minor aspect of our overall business. Any growth represents an enhancement. This business operates with a specific margin structure, and if we can gain market share while maintaining our current margins—which we aim to improve over time—it could result in significant benefits for us in the credit card space, especially compared to some competitors who primarily focus on cards. While we have been open about this competitive environment and our dependency on search traffic, as we diversify our marketing mix for the credit card business, the impact should become less pronounced. Presently, we recognize the need for improvement, which involves addressing various factors such as technology, through our Lightspeed migration, marketing by exploring alternative channels, and developing new products like TreeQual, which encapsulates our strategy.

I would like to add that we were initially slow to enter the credit card sector due to concerns about approval rate dynamics, which J.D. mentioned. However, we did enter through an acquisition and are currently working to enhance our offerings. In terms of competition, we have one competitor that excels in card SEO and another that outperforms us in approval rates due to Commons LightBox. Our strategy to respond includes TreeQual, the Win Card, and the Lightspeed technology work that J.D. discussed, along with improving our SEO on LendingTree. The advantage of having public competitors is that we can clearly see where we want to go, and we are very focused on achieving that.

Thanks, that's really helpful. Just a quick one, I think we had some at least qualitative commentary on insurance and Home as it relates to 2023. Can you just close the loop and share what you're thinking on growth and consumer and margin or growth in consumer and the margin there for 2023? Thanks.

Yeah, I mean, our baseline expectation as we kind of outlined in the letter from a revenue standpoint, again, sort of mid-single-digits from our revenue growth standpoint, and then we assume pretty consistent margin relative to what we saw last year.

Please stand by for our next question. Our next question comes from Melissa Wedel with J.P. Morgan. Your line is now open.

Good morning. Thanks for taking my questions today. A lot of them have already been asked, but I thought it would be worth touching on or following up on the consumer margin. Definitely saw that nice pop. And 4Q, your shareholder letter also referenced some organic growth from MyLendingTree there. So as we think about margin into 2023 should we be thinking sort of mid-40s or a sort of a normalized run rate? Or are you looking at 4Q given the current mix across products as something that's a more sustainable run rate?

Yeah, I'd say, Melissa, sort of mid to high 40s. And if you unpack the moving pieces within that, right, you've got the personal lines business that is incredibly high margin for us. The current environment with everything going on in the macro, sort of rates moving higher, and the health of the lenders in that space, just the orientation of the lenders in that space such that they are sort of protecting their current portfolios as opposed to interested in massive origination growth. The unit economics and personal loans are harder. We have to be conscious of the impact of that on the margin profile. Obviously, that's a big driver of the segment. That said, there are other areas where we're seeing really good margins. All of the work that we just talked about around the credit card business is clearly intended to improve the margins of that business because the margins there are not great today. But we're doing a lot of work that we think improves them. Small businesses are the other big driver within consumer; that's an incredibly high margin business for us. We think that is an increasing contributor to the segment as we progress throughout this year. To sum it all up, I think we did 44% margins in consumer on the full year last year. We did 48% margins in the fourth quarter. Somewhere between those two is our expectations for 2023.

Okay, that's really helpful. Thanks, Trent. And then I guess, the follow-up on TreeQual, are you able to share with us just sort of on an aggregate partner basis what percentage of partners are now participating in the TreeQual platform and what portion do you have left to convert?

I would describe the percentage of partners involved as minimal, currently in the single digits. However, this is not the primary focus for us. We are more interested in partners that can provide broader coverage, particularly regarding the types of cards they offer, whether they cater to super prime, prime, mid-prime, or subprime customers. Our goal is to collaborate with partners who have a diverse range of cards. We're particularly excited about integrating Upgrade into our network, as they are contributing five new cards. Over time, we aim to have all our partners engaged with some form of TreeQual. During the third and fourth quarters of last year, we were encouraged by the growing discussions with partners, giving us better insight into their interest in collaborating with us. There's a potential pathway for TreeQual that involves working with a trusted third party used by many card issuers for direct mail, which is often the easiest method. However, not all partners prefer that route; some are interested in direct integrations without third parties, which requires more time and technological effort from both sides. The increase in dialogue is promising, and we are pleased with both Upgrade's involvement and the performance of our current partners. However, it's important to note that the financial effects of TreeQual will likely show up in credit card activities and possibly personal loans in the future. This is not reflected in our 2023 guidance as a significant factor, as we view this year as one focused on onboarding partners, which should lead to a more robust credit card business moving forward. Nonetheless, our guidance does not hinge on additional revenue from TreeQual.

Got it? Thank you.

Please stand by for our next question. Our next question comes from Mike Grondahl with Northland Capital Markets. Your line is now open.

Hey, thanks, guys. I wanted to dig into the strategy a little bit. I think the Tree branded Win Card is the first time you've put your name on a product. And you mentioned more products to come. Are you trying to put one of these Tree branded products in each vertical? Or how should we think about kind of the rollout in some of the new products that you said will be coming over the course of the year?

I'll begin, and then J.D. will provide additional insights. MyLendingTree aims to offer the best customer experience for consumers. This is why we launched a branded card instead of having our MyLendingTree members search for cards elsewhere and potentially face rejection. We believe this product stands out as innovative and top-tier. I have always intended to pursue this, but we needed to find a unique set of offerings, which we now believe we have. The Win Card can serve as another entry point for MyLendingTree members. Additionally, it allows them to add a great card to their wallet with high approval rates. In MyLendingTree, we may not always introduce a single product, but we are committed to ensuring that whatever we offer is of the highest quality, encouraging consumers to return to us consistently without relying heavily on paid marketing to attract them back to the marketplace. J.D., do you have anything to add?

The only thing I would add, Mike, is we spent a lot of time last year doing consumer research on what specific financial jobs consumers would trust us with. We've got, as Doug mentioned, it's kind of a multiyear approach. We've got eight or so products that we would expect to launch over a multiyear period, so don't expect eight this year. The winning part is the first one, and the theme is really the adjacency, to why somebody came to LendingTree in the first place, and what problem they're trying to address. I don't think it's specifically going to be a product for every vertical area that we have. We will roll these out really relative to what we think is the most adjacent thing. We don't want it to become a feature factory; we want it to be things that genuinely add value for the consumer and drive engagement. I was thinking about it earlier, you think about, historically we talked about pushing our consumers in MyLendingTree to connect their accounts. You could come in and use the product to connect your accounts. There was obviously potential benefit for us in terms of the information that we were gathering. But there wasn't really anything on the other side for the consumer. If you think about what we're doing with the Win Card, we're saying here are these financial behaviors where we know you will be better off on the other side. If you come in, log in, and show engagement with us, you'll get your cash back. We know that we're going to improve your credit score and your access to other financial products over time. Our research showed that that would resonate with our consumer base and with the consumers who we want to be in MyLendingTree. So the Win Card is indicative of how we're trying to position ourselves with consumers, which is access to more products over time because of good sound financial behavior. You can envision that we're going to be helping consumers over time, address their debt stack, address which debts they should pay off first, that sort of thing, and really be an advocate for the consumer. That's where we want to be. We talk often internally about being a digital ally for the consumer, and the Win Card is the start of that.

Got it, got it, thanks. And I'm trying to understand is it kind of a pivot or the beginning of a big new direction for you guys? Legacy was sort of when banks compete, you win. And now it's more of a, hey, you might have a financial need, and we got a product to meet that need. I'm just trying to understand that evolution?

Yeah, so again, think of the marketplace in MyLendingTree as connected but also separate. When you come to LendingTree, when banks can bring you in, you expect to see choice in comparison shopping. When you upgrade to MyLendingTree, you expect to get instantly approved because we have all of your credit data. We've been giving you a free credit score probably for multiple months. A lender integrated with us can do really interesting stuff on the underwriting side that you can't do in a click-out model until TreeQual is fully there. MyLendingTree has just given you the best answer. We have a lot of exciting things coming, and we think the Win Card is broad enough to cover most of the credit spectrum. The approval rate aspect, improve the unit economics, and the features of it are targeted to exactly what MyLendingTree is, which is a financial journey, an ally to help you improve your financial standing and get you the best offers at the lowest price.

And Mike, just from a marketplace strategy perspective, one of the things we talk about internally is the degree of authentication. If you look at our personal loans vertical, our partners, we're delivering a highly authenticated consumer. That is true in mortgage as well. That is only true to an extent in insurance, that is not true in credit cards, that is not true in deposits, okay? Those are quick out businesses where we're not really delivering a lot of information on the consumer. We are authenticated in small business. We spend a lot of time talking about how much value are we delivering to our partners in terms of the type of information on that consumer where they can make informed lending decisions. So that’s the strategy within marketplace, our marketplace businesses. If you think about the strategy that Doug is articulating for MyLendingTree, it's very consumer centric. Historically, we have been guilty of really thinking about MyLendingTree as more of a marketing channel. If part of your question is, is this a pivot, I would say that this is a meaningful change in terms of how we think about MyLendingTree. What you're seeing is the beginning of the work that's been going on for the last year, in terms of where we want to play on the MyLendingTree side, and how we want to help consumers. While marketplace may have a slightly different strategy that is very oriented towards partners, and what they want to see, you can understand how the two interact. At the end of the day, TreeQual is all about authentication in the marketplace. The Win Card, but it's also on the consumer side about giving you an assured outcome as opposed to a potential denial. The Win Card is about that as well. I think the two strategies work hand in hand well, and that's actually the best approach that we could take.

Got it. Hey, that explanation was really helpful. Thanks, guys.

Please stand by for our next question. Our next question comes from Jamie Friedman with Susquehanna International Group. Your line is now open.

Hi, good results in a difficult environment. I just wanted to ask if you could possibly Trent double click on the assumptions on Page 8 in the shareholder letter, especially or specifically if you could with regard to the quarterly cadence. I realized we had the first quarter, we’ve got the year, but some of these segments have what looked like increasingly easy comps, so since we have to cauterize our models for this year, any callouts you could make on the segments by quarter? Thank you.

Yeah, totally fair question. Obviously, the Q1 guide relative to the full year guide implies some improvement throughout the year. A couple of things going on there. I guess, in consumer, many of those businesses have a seasonal curve to them where things generally improve from Q1 to Q2 to Q3 and then slow down a little bit in the fourth quarter. We see that in credit card generally; we see that in personal loans, for sure. That's driving some of the sequential improvement that's implied as we progress throughout the year. The other big one is obviously within Home and within mortgage in particular, given our increased reliance on purchase within that business, that's a business that clearly we expect to be better in the spring and summer home buying season than in the first couple of months of the year.

I show no further questions at this time. I would now like to turn the conference back to Doug for closing remarks.

I'll make this brief. This company views 2023 as a year of discipline and execution. I want everyone to know that we are confident in our position; we have experienced market corrections before. The diversification strategies we have implemented over the last few years have certainly helped safeguard the company in this challenging environment. I can assure you that this entire company is determined to succeed; we thrive on winning. We are focused, and our teams are working diligently, achieving tasks at the lowest cost and as quickly as possible using new collaborative methods. The entire company is energized. We are bringing people back to the office post-COVID, and we are very confident in our ability to excel in a highly competitive market. Our brand remains strong, and our marketing efforts are effective. Teams are dedicated to addressing key business levers with specific projects. As mentioned, we look forward to collaborating with you throughout the year and appreciate your support thus far. Now, we are going to get back to work and do our best. Thank you all very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.