LendingTree CEO sees risk of a fintech bubble after E-Trade, Credit Karma sales

LendingTree CEO Doug Lebda says that, despite recent mega-deals in the financial technology space, the loan marketplace he founded isn’t for sale.

In February, two huge acquisitions shook up the marketplace in finance, with Morgan Stanley announcing a deal to buy trading platform E-Trade for $13 billion and Intuit disclosing plans to buy personal finance firm Credit Karma for $7 billion. LendingTree, though, doesn’t appear poised to join the party.

“Although everything’s always for sale, my hope is that we are not in the sell mode.” Lebda said in an interview.

For its part, the Charlotte-based loan marketplace that Lebda founded has continually bought up smaller firms in recent years, but nothing on the scale of the megadeals of February. Instead, Lebda is worried that there’s too much capital chasing too few deals at the moment, leaving open the possibility for a bubble.

He would know.

LendingTree was hit hard by both the housing and tech bubbles, but emerged from both. Now, under Lebda’s watch, the company has seen its stock price rebound from as low as under $2 in the midst of the 2008 financial crisis to its current perch of $273 per share.

Lebda, 50, talked with the Observer recently about Charlotte, recent mega-deals in finance and the chances of a bubble in financial technology. Questions and answers are edited for clarity and brevity.

Q: To start off, can you give us a short synopsis of who you are and what LendingTree is?

I’m the CEO and founder of LendingTree. I started it in 1996 and then moved to Charlotte in 1997, set up LendingTree in my spare bedroom in Ballantyne. We went and built the company from there. We’re an exchange between consumers and financial service providers to help you with comparison shopping across mortgage, home equity, auto, credit card, personal loans, all types of insurance and now also deposit products.

Q: How did you end up in Charlotte?

I started in Pittsburgh, I was an accountant for Pricewaterhouse. I was trying to buy a $55,000 condo, I was looking at the rates in the Pittsburgh Post-Gazette and then went from bank to bank and applied for this mortgage. I was getting what consumers normally got, the run-around. “Oh, that rate’s not good for you.” “You’re a condo, that rate’s higher.” I didn’t feel like it was an empowered process.

At the same time I was doing work in other financial service industries and seeing the Internet come online, seeing trading come online and I just said, “Why can’t we network up all of these lenders with all of these consumers?” I spent about six months trying to sell banks on this concept. I did not have a lot of success.

It was early in 1997 and I decided to go to business school at the University of Virginia. During that year, I wrote the business plan, got some early investors and did some early testing.

At the end of that year, I was also interviewing for jobs. I wasn’t sure if I was going to pursue LendingTree. I was interviewing with Nationsbank at the time and McKinsey, and was looking for the right city to start LendingTree.

As I was looking at the East Coast and the West Coast, I just kept being drawn to Charlotte as a place I thought where we could recruit people in the area. They had a lot of people who understood banking and financial services, which I didn’t. I thought that we could attract technology talent to the area and that’s turned out to be largely the case. So, we were very early here in the financial services and so-called fintech space.

Q: Charlotte appears to take a lot of pride in having its business leaders take on an outsized civic role in the city. You’re co-chair of the RNC Host Committee. How do you see yourself filling in that leadership role?

Early on when I was here, I got a call from Hugh McColl. I pick up the phone and he says he wants to take me to lunch. He basically said to me, as an up-and-coming business leader in the city, we work together with government as business leaders.

We all set our differences aside to get things done. I took that and believed in it... LendingTree has set aside $10 million, we’ve launched a foundation... the niche we want to play in Charlotte is: how do we, through affordable housing, through better education, through giving people opportunities they wouldn’t get otherwise, how can we give people a way up?

Q: You’ve been criticized for high compensation in the past. Why do you think that is and what do you say to that? (Lebda made $42.3 million in 2018, mostly in restricted LendingTree stock, the Observer reported last year.)

My stock, for example, vests based on time and based on us having, I believe, at least 15 or 20% earnings growth over time. So, I don’t get anything unless my shareholders are making money and I’m still around.

And then if you have a period where our stock moves up a lot, it looks like you’ve received compensation in that period, when the reality is that it’s set years earlier and your stock just went up. My comp is about 97% in equity in the company, which is completely aligned with shareholders.

That’s what we want, and our shareholders absolutely love that and they love seeing when my stock vests because then they know that we’re producing growth at the company. It’s aligned with what they want, I think that that’s the way executive compensation should really be.

Q: In the past few weeks, there’s been an incredible amount of M&A activity in the consumer and retail finance space. is LendingTree considering any strategic move, whether it’s the sale of itself or the acquisition of another company?

Right now, I would say, although everything’s always for sale, my hope is that we are not in the sell mode. We have been very active in acquisitions over the past few years as we rounded out our portfolio and grew some capabilities in credit card, insurance, etc. Insurance is now our largest business.

What you’re seeing now is I think a consolidation and people really paying attention to fintech and financial services particularly online.

You can go all the way back to early Internet days. Mary Meeker, who used to be the first Internet analyst at Morgan Stanley, wrote an Internet research report of when different industries were going to come online. Financial services was the last and was the biggest.

And now you’re starting to see lots of different things going on. So if you’re Morgan Stanley and your job is to really make money off of assets under management with higher net-worth people, then this E-Trade deal makes sense because you’re going to try and convert those people into Morgan Stanley accounts.

Q: Are there any trends that you think are important to note in your field?

I think now things are accelerating at a rapid pace. What we’re going to need to look for over the next few years is that valuations in some of these so-called startup fintech things — that things don’t get out of control too much and that valuations don’t create another bubble.

Q: Do you think there’s a risk of that?

I do think there’s a risk of that. Because what you have now is too much capital chasing maybe too few deals. And you’ve got all these big companies that have to make moves, like we talked about with E-Trade and with Intuit and others.

When the big guys need to tie for second, then all of a sudden things start to happen.

The industry structure is set up where everyone is looking for their lane. And I’ve always been waiting for this because I love where we sit. We own the consumer relationship and we help our lenders make money. Those two things work very, very well together.

Q: So, you can remain inoculated from individual products in those spaces?

A: Exactly. And the better our lenders get at technology, the more then we can invest in marketing. The more we can invest in marketing, the more customers we can bring which reinforces LendingTree overall.

This story was originally published March 2, 2020 at 5:30 AM.