IAC/InterActiveCorp said Tuesday that third-quarter operating income from its mortgage-related businesses dropped 38% from a year earlier, to $18.8 million.
The mortgage businesses consist of two lead-generation Web sites, LendingTree.com and GetSmart.com, and an originator, LendingTree Loans. The company said these businesses were hurt by the difficult mortgage market — particularly by a decline in the percentage of leads that turned into closed loans, problems with selling loans in the secondary market, and higher marketing expenses as a share of revenue.
Revenue from these businesses slipped 3%, to $106 million.
Thomas J. McInerney, the chief financial officer of the New York company led by Barry Diller, said during a conference call, “We did come a little shy of our hopes” in terms of revenue. He noted that customer acquisition costs decreased 4% from a year earlier and 11% from the second quarter. “The fourth quarter in lending is a little easier” in terms of competition.
He said IAC had cut marketing costs to improve profits this quarter.
Doug Lebda, the president and chief operating officer of IAC, said during the call, “We clearly need more progress” in the mortgage businesses. He mentioned efforts to hire and train new loan officers, shuffle management, and improve online marketing. “Obviously, we wish the picture were better,” said Mr. Lebda, who founded LendingTree in 1998 and sold it to IAC in 2003.
IAC realized a year ago that its competitors had surpassed it in terms of online marketing, but the company is now “better at online marketing than we were one year before,” even though costs in the channel exceeded profits, he said. “The challenges aren’t clear to solve, but we are making progress.”
The pain in mortgages was offset by IAC’s ticketing sector (which includes Ticketmaster), whose net income rose 14% from a year earlier, to $57 million. Overall company profits rose 11.4%, to $171.8 million. Shares of IAC were up 3% in midday trading.
Mr. Lebda reported that industrywide originations fell 29% during the third quarter, and refinancings plunged 43%. Analysts said IAC’s mortgage lines were suffering from market conditions, not the business model.
“It’s pretty well-accepted that it’s industry-specific and not company-specific,” said Scott Devitt of Stifel, Nicolaus & Co. Inc. in St. Louis. “I think LendingTree is a very good business model, but even good business models don’t work when there are no transactions.”
Mr. Devitt, who has a “hold” rating on IAC’s stock, said he “wouldn’t penalize them specifically, because I don’t think there is anything the company could do to fix” slow sales.
