NURSERY STOCK.

• Author: Martin, Edward
• Position: Profile of Doug Lebda and his Lending Tree online loan marketplace - Company Profile

LendingTree is raking in revenue, but just how long can the online loan marketplace stay healthy rooted in red ink?

Outside, black smoke billows from bulldozers flattening a hill for more offices. Doug Lebda, 30, thin-lipped and unsmiling, sits with his back to the window, his long-sleeved black shirt open at the collar. A claw hammer lies on his desk to hang pictures still stacked in a corner.

This is Charlotte's dot-com frontier, and Lebda arrived here by way of a personal snit. Four years ago, fuming over difficulty getting a mortgage for a $60,000 condo, he plotted revenge -- an online loan marketplace that would force lenders to bid for borrowers, not the other way around.

A year later, he pitched the concept to classmates in a competition at the University of Virginia's business school. "I lost to a nightclub that somebody was going to open in Charlottesville," he says, forcing a weak grin. He can laugh out loud. His concept has grown into LendingTree Inc. Through his operations center in upscale Ballantyne Corporate Park, lenders closed $1.8 billion in loans the first half of this year.

Lebda and his 125 employees -- despite his insistence that "we're really a traditional business" -- exude edgy, dot-com attitude. Mountain bikes lean against desks while techies sink into funky red and green beanbags, kicking around ideas as though they were Hacky-Sacks. In a studio they call Town Center, they gather on wooden bleachers for shout outs -- pep rallies for the Pentium generation. "You have to keep the spirit of anarchy alive," explains Howard Aldrich, a Chapel Hill management professor who studies e-commerce.

But LendingTree is serious business, and the stakes are rising. "We've become the leading online loan marketplace," says Lebda, who suddenly finds himself on the speed-dials of Tar Heel digerati. "We have to pick and choose the shows he goes to," adds Deborah Roth, the company's communications director.

Shyness and Lebda never met. "Back when I was with Pricewaterhouse, I was one of the first experts on derivatives. There I was, 24 years old, sought after to speak at industry conferences all over the country." That's how it's gone, a fast ride of banquets, awards and accolades. Lebda recently was named Ernst & Young's Carolinas Year 2000 Entrepreneur of the Year. Heady stuff, and it's been fun, all the way from idea through initial public offering.

School's out now, though. Nice plan, but what about execution? LendingTree's red ink flows as swiftly as its burn rate for investor dollars, and profit has yet to set foot on the premises. By July 1, its second anniversary, losses totaled $68 million, even though this year's projected revenues of $28 million have been revised upward by $5.4 million since January. Profitability isn't on the horizon until 2002.

They're not sustainable," says Chris Larsen, chief executive of E-Loan Inc., Lending Tree's California-based archrival. "They're middlemen to the middlemen. They're growing, but you can't buy market share forever." Larsen's company lends directly to consumers, while LendingTree serves as matchmaker between borrower and lender, then exits.

Competitor, heal thyself, reply LendingTree executives, pointing out that E-Loan gushes red, too -- $21.5 million in the first half, compared to their $36 million. "We're starting from scratch, and even Henry Ford didn't make a profit overnight," retorts Keith Hall, chief financial officer at LendingTree, and he, Lebda and other executives are incessantly upbeat. They point out that first-half revenues were up sixfold from a year earlier, and losses down from $1.19 per share a year ago to $1.04 per share for the latest quarter. The bulk of expenses are for advertising and marketing, says Hall, adding, "We're building mind share" -- what others call brand awareness.

Outsiders offer some support, too. William Doyle, research director of Forrester Research Corp. in Cambridge, Mass., expects LendingTree to capture the lion's share of an online loan market that'll mushroom to $168 billion by 2003, a 600% increase. Richard Beidl, who tracks the company for TowerGroup Inc., an international financial-services research firm in...