Angi has cheap stock and a new plan to help owners
Technology has succeeded in replacing business trips, gym visits and in-person shopping. But for anyone who has dealt with a leaky tap or an overgrown tree, the Covid era has been another reminder: good help is hard to come by.
(ticker: ANGI) has spent the last 25 years trying to solve the problem. For most of this time, the company used Internet advertisements to match homeowners with pre-screened plumbers, carpenters and landscapers. It was a decent business, but the model stalled during the pandemic. Overworked entrepreneurs, faced with overwhelming demand, hardly needed to pay for advertising.
Revenue from Angi’s ads and leads business, which accounts for about three-quarters of the company’s revenue, was flat in the latest quarter even as demand for contractors increased. Shares of the company have fallen 33% over the past 12 months. But Angi is working on a fix, and in a world of expensive internet stocks, the stock now looks like a bargain.
Angi, which spun off 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. While the company historically exited after making an introduction, its new Angi Services segment serves as a nut soup market. All communication, scheduling and invoicing between the owner and the contractor is done through Angi’s platform. Angi gets an undisclosed percentage of each job.
There are over 500 services available, including plumbing, landscaping, painting, roofing, remodeling, housekeeping and pest control. Entrepreneurs benefit from guaranteed jobs at fixed rates, with Angi taking care of bill collection. Meanwhile, owners can easily book appointments through the web or mobile app.
If that sounds like calling a car through Uber or booking a vacation home on Airbnb, that’s part of the plan.
“Owning a home is difficult,” says Angi CEO Oisin Hanrahan. “We want to meet all of a homeowner’s needs and take some of that stress out, while changing the economy” for home service providers.
Although still small, the Angi Services segment is already showing impressive growth, with revenue up 160% year-over-year in the third quarter to $117 million.
There is a significant upside from there. Americans spend nearly $600 billion a year on home services. Less than 20% of these jobs start online, a figure that is expected to grow rapidly as a new generation of digital natives enters the housing market.
Wall Street analysts expect Angi to report revenue of $1.68 billion in 2021, up a modest 15% from a year earlier. This should accelerate as Angi Services becomes more dominant and the legacy business returns to growth.
JP Morgan analyst Cory Carpenter expects Angi Services to account for more than 40% of the company’s total revenue by 2025. He sees it growing by more than 50% in 2022 , versus single-digit growth in ads and leads.
“For an investor, it ticks a lot of boxes: a large total addressable market, low online penetration, and top market share,” says Carpenter, who values Angi stock at the equivalent of Buy.
|Change over 52 weeks:||-32.8%|
|Market value (bil):||$4.1|
|2022E sales (bil):||$2.0|
|2022E net income (millions):||-$96|
|2022E P/E:||N / A|
E=estimate; N/A=not applicable
So far, investors aren’t paying attention. Shares of Angi trade for just 1.8 times the $2.29 billion in revenue Wall Street expects the company to generate in 2023. That compares to Angi’s five-year average of more than five times the income for the coming year. Major online marketplaces like
(UBER) recovers an average multiple of 6.1.
Part of Angi’s discount is warranted, given her projected slower growth than her peers. The company is aiming for 15-20% annual growth in the coming years.
Big profits are not imminent either. The ongoing name change to Angi requires heavy investment, as does the expansion of Angi Services into more categories and geographies. Angi is expected to lose $66 million in 2023, before becoming profitable on a net income basis in 2024. Hanrahan says he is comfortable with operating the business at breakeven for several years, favoring long-term growth to short-term profits. The good news is that Angi has little debt and is cash flow positive, meaning it should be able to self-fund this growth.
(IAC), the tech start-up controlled by Barry Diller, owns about 85% of Angi’s shares.
“We see a really great opportunity to turn this business into what could be an 800-pound gorilla in the home services space,” says Lori Keith, $8.3 billion portfolio manager.
Parnassus Mid Cap
(PARMX), which is Angi’s largest non-IAC shareholder. “You have to take a long-term view when investing…to achieve greater scale, and then see the [profit] inflection of the margin on the road.
Angi doesn’t need an Airbnb-like multiple to generate meaningful returns.
Carpenter uses an undemanding three-fold sell multiple to arrive at a price target of $13 on Angi shares, 58% higher than a recent $8.21.
Like countless other areas of the 21st century economy, home booking services will increasingly move online. With Angi, investors will have to be patient. But they now have the option of entering on the ground floor.
Write to Nicholas Jasinski at [email protected]