Technology has managed to replace business trips, visits to the gym, and in-person shopping. But for anyone who has dealt with a leaky faucet or overgrown tree, the Covid era has been another reminder: Good help is hard to find.
Angi (ticker: ANGI) has spent the past 25 years trying to solve the problem. For most of that time, the company used internet ads to match homeowners with prescreened plumbers, carpenters, and landscapers. It was a decent business, but the model stalled during the pandemic. Overworked contractors, faced with overwhelming demand, have had little need to pay for advertising.
Revenue for Angi’s ads and leads business, which is about three-quarters of company revenue, was flat in the latest quarter, even as demand for contractors surged. The company’s stock is down 33% over the past 12 months. But Angi is working on a fix and—in a world of pricey internet stocks—the stock now looks like a bargain.
Angi, 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. While the company historically left the scene after making an introduction, its new Angi Services segment serves as a soup-to-nuts marketplace. All communication, scheduling, and billing between homeowner and contractor take place via Angi’s platform. Angi gets an undisclosed percentage of each job.
There are more than 500 available services, including plumbing, landscaping, painting, roofing, remodeling, housecleaning, and pest control. Contractors get the benefit of guaranteed jobs at fixed rates, with Angi handling bill collections. Meanwhile, homeowners can easily book appointments via the web or mobile app.
If it sounds like calling a car via Uber or booking a vacation house on Airbnb, that’s part of the plan.
“It’s hard to own a home,” says Angi CEO Oisin Hanrahan. “We want to serve every need a homeowner has and take some of that stress away, while changing the economics” for home-services providers.
While 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’s significant upside from there. Americans spend nearly $600 billion annually on home services. Less than 20% of those jobs begin online, a figure that should quickly increase as a new digitally native generation enters the housing market.
Wall Street analysts expect Angi to report 2021 revenue of $1.68 billion, up a modest 15% from the prior year. That should accelerate as Angi Services becomes more dominant and the legacy business returns to growth.
J.P. Morgan analyst Cory Carpenter expects Angi Services to make up more than 40% of the company’s total revenue by 2025. He sees it growing more than 50% in 2022, versus single-digit growth in the ads and leads 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 Angi stock at the equivalent of Buy.
Angi / ANGI
Online Marketplace for Home Services
| Headquarters: | Denver |
|---|---|
| Recent Price: | $8.21 |
| 52-Wk Change: | -32.8% |
| Market Value (bil): | $4.1 |
| 2022E Sales (bil): | $2.0 |
| 2022E Net Income (mil): | -$96 |
| 2022E EPS: | -$0.24 |
| 2022E P/E: | N/A |
| Dividend Yield: | None |
E=estimate; N/A=not applicable
Source: Factset
So far, investors aren’t paying attention. Angi stock trades for just 1.8 times the $2.29 billion in revenue that Wall Street expects the company to generate in 2023. That compares with Angi’s five-year average of more than five times year-ahead revenue. Leading online marketplaces like Airbnb (ABNB), Etsy (ETSY), and Uber Technologies (UBER) fetch an average multiple of 6.1.
Some of Angi’s discount is justified, given its slower projected growth than peers. The company is targeting 15% to 20% annual growth in the coming years.
Large profits aren’t imminent, either. The ongoing rebrand to Angi requires heavy investment spending, as does building out Angi Services in more categories and geographies. Angi is projected to lose $66 million in 2023, before turning profitable on a net income basis in 2024. Hanrahan says he’s comfortable with operating the business at break-even for several years, prioritizing long-term growth over near-term profits. The good news is that Angi has little debt and generates positive cash flow, meaning it should be able to self-finance that growth.
IAC/InterActiveCorp (IAC), the Barry Diller–controlled technology start-up holding company, owns some 85% of Angi shares.
“We see a really great opportunity to build this business into what could be an 800-pound gorilla in the home-services space,” says Lori Keith, portfolio manager of the $8.3 billion Parnassus Mid Cap fund (PARMX), which is Angi’s largest non-IAC shareholder. “You have to take a long-term view as they invest…to achieve greater scale, and then see the [profit] margin inflection down the road.”
Angi doesn’t need an Airbnb-like multiple to deliver significant returns.
Carpenter uses an undemanding sales multiple of three times to come up with a price target of $13 on Angi shares, 58% upside from a recent $8.21.
Like countless other areas of the 21st-century economy, booking home services will increasingly move online. With Angi, investors will have to be patient. But they now have an opportunity to get in on the ground floor.
Write to Nicholas Jasinski at [email protected]
