Banking

For Lebda, it's back to the future

It's back to the future for Doug Lebda.

Twelve years after founding LendingTree, the online mortgage marketplace, Lebda has returned as the chief executive of the Charlotte-based company – renamed Tree.com Inc. to signify its diversification into other services. His challenge is to navigate a national housing crisis that has depleted the company's profits and led to major job cuts over the past year.

Lebda, 38, survived the dot-com bust in 2000 and 2001, sold LendingTree to Internet conglomerate IAC/InteractiveCorp in 2003 and eventually became president of New York-based IAC. Last year, however, IAC said it was spinning off LendingTree and three other units so it could focus on its Web businesses. Today the separation is official, and Lebda is back at the helm of a stand-alone public company.

LendingTree, which matches borrowers with lenders, remains Tree.com's signature product. But the company also has a network of real estate agents (www.realestate.com), makes its own loans and is branching into credit cards and insurance. Recent initiatives include refreshing the LendingTree site (www.lendingtree.com/beta) and preparing a new student-lending site (www.tuitiontree.com).

Although Lebda counsels his employees not to get caught up in daily stock-price gyrations, he admits he likes having the company's shares trading again under its former “TREE” symbol. In provisional trading Wednesday, the shares closed at $7.42, down 3 percent..

“It's great to be on our own and to have a public currency that will reflect the value we uniquely create,” Lebda said recently. “As much as we loved being part of IAC, we really love what we're doing now.”

In a wide-ranging interview at his company's Ballantyne headquarters, Lebda discussed his return to the company, the mortgage market, a recent data breach and his compensation. Questions and answers are edited for brevity and clarity.

Q: Any déjà vu returning to the company?

I'd say no. When I was at IAC, I was always still very connected to LendingTree and to what was going on here. When I had the opportunity to come back – but not to just come back to LendingTree as it was in the past, but to hopefully build on all the assets we have here to create a new and even better company – I jumped at the opportunity. Basically, I saw that we had a great online marketing capability, we had a fantastic brand in LendingTree, and our real estate business was continuing to advance. The idea was to take those assets and combine them into a company that can launch new businesses that are closely related to LendingTree, leverage our online marketing capabilities and end up with a much larger, more diversified company.

Q: Where are we in the mortgage cycle?

There are two major drivers of the mortgage and real estate cycle: home prices around the country and the unavailability of credit right now. Those two certainly relate, but you can also have one being an issue without the other. I think we're hopefully near the bottom as a result of both of these, but at the same time we're not seeing signs of life in, certainly, the credit markets. We're seeing, if anything, mortgage products going away from the market, not coming back into the market. On the real estate side, I guess the one encouraging indicator that we are starting to see is pick-up in transaction volumes in some key markets. But at the same time, a lot of those sales are so-called short sales where people are selling the home for less than their mortgage. It's good to see that sellers and buyers are able to find a price to clear these transactions, but at the same time the valuations are very low historically.

Q: Is there a role for LendingTree in these transactions?

There's demand on the real estate side. We operate a real estate brokerage business that has abut 1,000 real estate agents working around the country in 14 different markets, and that business continues to do better every month, so there's demand for those services. There's absolutely purchase-mortgage demand. The thing that makes the business challenging in the short term is the fact that unless you've got at least 10 percent and in most instances 20 percent down, it's very difficult for you to find a mortgage product except in some of the Federal Housing Administration products, so there's just fewer products to help consumers. So there's consumer demand, but not enough product supply, if you will.

Q: Now that you're independent again, was the IAC sale worth it?

It definitely was. What IAC gave us for a five-year period of time was significant capital to invest in the business. If we had not spent those five years, I think we would be in a much weaker position today. We did several acquisitions throughout that time, including LendingTree Loans, moving into the real estate business. We lost money on real estate for three years at significant levels while we got the model right. We invested very heavily in that business. So we're coming out at a time where the assets of the company are very strong, and we're in a much stronger position than any of our competition is and we've got a significant amount of capital that they're spinning us off with. The short term is going to be challenging, certainly, but we feel great about the long-term opportunity, and we're very happy to have been part of IAC.

Q: The company has shown an operating profit in only three of the last eight years. Why would an investor want to own this stock or buy it?

If somebody is investing for the short term, I would not encourage them to be our shareholder. But at the same time if somebody is taking a long-term view of saying, ‘this is the management team that was able to raise over a hundred million of venture capital and public capital, get a company public, survive the dot-com crash of 2000 and 2001, hit all their numbers consistently and then get the company sold for substantial shareholder returns and now I believe in their ability to survive this market and to get great returns for shareholders over the long term,' those are the shareholders we want. But if they're thinking about it in the short term, there are probably other stocks for them to play.

Q: Which was worse: the dot-com crash or this current mortgage crisis?

I think the more you go through these times the better you are able to deal with them, so this feels better. But I think it's because we're probably more experienced in dealing with them. That was a downturn only of our stock price. It was actually a good time for our business. And it was a major dislocation between our stock price and our underlying business. Now we've just got a downturn in the business, and who knows where the stock price is going to be? As I say to our employees all the time, at anytime there is going to be a disconnect between your share price and the underlying value of your company. That's why you need to basically ignore the share price and focus on your own internal metrics and your own internal initiatives.

Q: You have had significant layoffs in the past year. Has your workforce stabilized?

Here we went from 2,700 at the peak down to about 900. I think so. We're basically trying to match our cost with our ability to generate revenue to make sure we manage the business appropriately for this market, and for this time that feels about right. Inside that 900, we're always hiring. We need great tech people, great product people, great online marketing people, great finance people. So we're always looking for fantastic talent to keep this place fresh and moving forward.

Q: In April, you disclosed a data breach (allegedly caused by former employees who used passwords to access customer information). Have any customers been harmed by this?

That issue is very, very unfortunate. The important things to note are that we discovered it, and we alerted authorities about it as soon as we discovered it. We do not believe that there was any customer who was harmed by this. If anything, they got an extra call from a mortgage provider to offer them a mortgage, which we don't think happened all that frequently. The law requires you to let all of your customers know this happened and that's exactly what we did.

Q: According to a lawsuit filed by the company, a former employee is a target of a criminal investigation in this case. Is LendingTree a target?

We alerted authorities about this. In our lawsuit, we allege this was caused by a couple of ex-employees. We feel like we have valid grounds in those lawsuits. We are not a target. We are the victim, and we have been continuing to cooperate.

Q: As part of the spin-off, you are set to receive restricted stock worth 1 percent of the company and options that would allow you to acquire another 10 percent of the company over time. What does this possible ownership stake say about your plans at the company?

What it says in negotiating the opportunity to come back here, I wanted to make sure I'm aligned with shareholders. My options are priced significantly out of the money. So to get that ownership stake, the shares of the company need to appreciate considerably, up to three times actually from where we start. I believe in the ability of our team here to be able to put those kind of returns on the board over time, and I want to make sure my compensation is in alignment with those shareholder returns. I'm a big believer in the company and, over time, the stock.

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