Technology has managed to replace business trips, gym visits and personal shopping. But for anyone who has dealt with a leaky tap or a tall tree, the Covid era brings another reminder: good help is hard to find.
Angie (ticker: ANGI) has spent the past 25 years solving this problem. For much of that time, the company used Internet ads to match homeowners with pre-determined plumbers, carpenters, and landowners. It was a good business, but the model stalled during the pandemic. Overworked contractors facing high demand had little need to pay for advertising.
Revenue for Angie’s ads and flagship business, which accounts for about three-quarters of the company’s revenue, was flat in the latest quarter, even as demand from contractors grew. The company’s stock has fallen 33 per cent in the last 12 months. But Angie is working on a fix and—in the world of expensive Internet stocks—the stock now looks like a bargain.
Angie, which stems from the 2017 merger of Angie’s List and HomeAdvisor, has begun to take a more active role in the relationship between homeowners and contractors. Although the company historically left the scene after introducing one, its new Angie Services segment serves as a soup-to-nuts marketplace. All communication, scheduling and billing between the homeowner and contractor takes place through Engie’s platform. Angie gets an unknown percentage of each task.
There are over 500 services available, including plumbing, landscaping, painting, roofing, remodeling, housecleaning and pest control. With Engie Handling Bill Collection, contractors get the benefit of guaranteed jobs at fixed rates. Meanwhile, homeowners can easily book appointments through the web or mobile app.
If it looks like calling a car through Uber or booking a vacation home on Airbnb, that’s part of the plan.
Oisin Hanrahan, Angie’s CEO, says, “It’s hard to own a home. For home-service providers “we want to meet a homeowner’s every need and relieve that stress while transforming economics”.
While still small, the Angie Services segment is already showing impressive growth, with revenue up 160% year over year in the third quarter, to $117 million.
There is significant upside from there. Americans spend about $600 billion annually on home services. Less than 20% of those jobs start online, a figure that should increase rapidly as a new digital native generation enters the housing market.
Wall Street analysts expect Angie’s to report revenue of $1.68 billion in 2021, up a modest 15% from the prior year. This should accelerate as Angie Services becomes more influential and the legacy business returns to growth.
JPMorgan analyst Corey Carpenter expects Angie Services to make up more than 40% of the company’s total revenue by 2025. He sees growth of over 50% in 2022, with single-digit growth in ads and leads the business.
“For an investor, it checks a lot of boxes: a large total addressable market, low online penetration, and leading market share,” says Carpenter, who rates Angie stock as a buy.
So far investors are not paying attention. Angie stock trades for just 1.8 times the $2.29 billion in revenue Wall Street expects to generate from the company in 2023. That compares to Angie’s five-year average with more than five times year-ahead revenue. Major online marketplaces such as Airbnb (ABNB), Etsy (ETSY), and Uber Technologies (UBER) receive a multiplier of 6.1 on average.
Given its slower projected growth than peers, some of Angie’s leeway is justified. The company is targeting 15% to 20% annual growth in the coming years.
Big profits are also not imminent. The ongoing rebrand for Angie has required substantial investment spending, as Angie builds out services in more categories and geographies. Angie is projected to lose $66 million in 2023 before turning profitable on a net income basis in 2024. Hanrahan says he is comfortable operating the business at break-even for several years, prioritizing long-term growth over near-term profits. The good news is that Angie has very little debt and generates positive cash flow, which means it should be able to self-finance that growth.
IAC/InterActiveCorp (IAC), the Barry Diller-controlled technology start-up holding company, owns approximately 85% of Angi shares.
“We see a very good opportunity to build this business into the home-services space as an 800-pound gorilla,” says Lori Keith, portfolio manager for the $8.3 billion Parnassus Mid Cap Fund (PARMX), which is Angie’s largest non-IAC shareholders. “You have to take a long-term view as they invest … to achieve greater scale, and then see [profit] Margin inflection down the road. ,
Angie doesn’t need a multiple like Airbnb to deliver significant returns.
Carpenter uses an unseeded sell three times to come up with a price target of $13 on Angie shares, up 58% from $8.21 recently.
Like countless other sectors of the 21st century economy, booking home services will increasingly go online. Investors will have to be patient with Angie. But now he has a chance to come on the ground floor.
Write [email protected] . on Nicholas Jasinski