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ANGI - ANGI Homeservices Inc


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Price dropped a good bit after the recent earnings.  It looks like demand is there from users but they were not able to have enough service providers.  I personally have found service providers in my area to be slammed and booked up so this doesnt seem unique to ANGI.

 

ANGI is beginning to introduce fixed cost services and this offering has had good interest.  This seems like the potential igniter - it would be great to get my gutters done for price X without having to call or meet anyone.  Similar to how CarMax takes out the annoyance for many people of working with salesman and opaque pricing. There has been an uptick in users searching for services for the first time and they believe the hardest part is simply getting someone to search once, the rest falls into place.

 

Boyar Value Capital on Yet Another Value Blog podcast:

https://www.boyarvaluegroup.com/tag/angi/

 

There is relatively small float and if the service does spark then it is possible the share price rockets

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Anecdotally, I do know a few folks who utilize these types of services. Its basically where the stupid homeowners meet the lazy contractors....I like the idea behind this and recently repurchased a little trading position around here($10). There's certainly potential here, but its not where you are going to find the cream of the crop so to speak...

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  • 5 months later...

I actually like the company still at today's prices. 

What's priced in today: $1.47bn 2020 revenue, grown at 5% to 2025 at a 23% FCF margin and 20x FCF multiple gives us a value of $8.5bn (in 2025), slightly above today's market cap, so <1% return p.a. until 2025.

I think the 5% CAGR is very conservative, one might argue about the 23% FCF margin or the multiple. On the margin, I believe the mgmt made a plausible case that they could reach the 35% EBITDA margin in a more mature (less growing) state, so a 23% FCF margin should according to historical D&A, capex and a 21% tax rate be possible.

What's realistic: A 15% revenue CAGR (rest the same) leads to a 2025 value of $13.7bn, a 14% annual increase in value.

Whats optimistic (but imo possible): revenue growing at 20% (after 2021, in 2021 only 10%) to $3.3bn in 2025. The market assigns this growth stock a FCF multiple of 25 (on $800mn FCF) to give a value of almost $20bn in 2025, a 24% annual increase in value.

If we look at the optimistic case from another perspective, the $3.3bn revenue in 2025 could be achieved if Angi captures $30bn Gross Transaction Value (6% of TAM of $500bn) at a take rate  slightly below 11%. Do these number seem crazy? - I don't think so!

 

While playing with the numbers is fun, I believe also that the underlying business (if well executed!!!) creates real value for both sides. For the home-owners, it seems obvious that ordering through an app (at fixed prices) is convenient, reduces information asymmetry, allows for easy payment and (soon) financing.

For the service provider (SP), Angi can be a high-MROI customer acquisition channel that can fill gaps in the existing schedule, provide video inspection, easy invoicing, payments and financing. The potential drawback is here that SP pays for a service that he/she doesn't need since there are enough customers around calling via phone.

So for me the key of the investment thesis lies in the execution of Angi. While great execution is difficult, I do also believe that they have their destiny in their own hands - a factor I always like a lot. I think there are two "forces" to bring the SPs onto Angi: 1) If Angi provides enough added value to an SP (be it to fill schedule gaps or to simplify invoicing..) a SP might sign up "voluntarily". 2) If enough customers and SPs in a specific local region are on Angi, the remaining SPs are almost "forced" to also join and not miss out. I imagine that while the initial sign-up process is very painful (and much slower than many thought), there is some kind of tipping-point, when growth actually accelerates. While obviously not everyone will sign on or do the entire business on Angi, I believe the 6% of TAM from the (optimistic!) scenario above does not seem extreme.

According to this logic, I believe that the mgmt is taking exactly the right steps to move towards their goal of adding more SPs and increasing the value for SPs. They increase the field force to accelerate the manual "sign-up" process, while at the same time pushing SP-friendly features such as fixed-price, payment or financing. I would hope that they go micro-market by micro-market to increase the SP density in these local areas enough to achieve this "tipping point" one zip code at a time.

 

Would be interested in opposite views/ whether I miss a key point!

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I cannot speak about benefits for service providers although currently mostly/everyone is overbooked AFAIK, so there's almost no need for ANGI from service provider PoV.

For home owners the proposition is possibly nice. But in reality most services are not fungible and are tough/unlikely to fit fixed-price.

I still have not ordered anything from ANGI and unlikely to do it in foreseeable future. E.g. I have couple of small electrical jobs that I'd like to be done. Are they fungible? No. I can't even describe them in a sentence. They are also likely jobs that no electrician would want to drive for. And these are likely still way more fungible than any bigger jobs I have.

Anyway, see also upthread my comments about the non-fungibility of jobs and my experience with ANGI and their subs.

ANGI may do well if they can figure out what works. I don't think they did yet.

Disclosure: I own some ANGI

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thanks for your comments! 

I appreciate the current situation that service providers are over-booked and the general difficulty in standardizing and standard-pricing many of the home services tasks. I still believe however, that medium- to long-term (5-10y) a greater share of this work will be connected via a platform such as Angi. And as you can see in the rough calculations from above, not even 10% of TAM is needed on the platform to make a bull case.

For me it's hard to imagine that a platform, which can bring millions of customer requests, facilitate transactions etc. can't add significant value to SPs. Perhaps we just have to agree to disagree here:)

I also interpret the following points as supporting evidence that some of the SPs see the value add from Angi.

  • While below target, there is still growth in SPs, monetized transactions and revenue (ca. 12% in Q1 2021 despite "everyone being overbooked")
  • While being in direct contact with thousands of SPs, Angi decided to launch their new features to improve SP retention. It's almost unthinkable for me that they didn't test/ probe these features with some SPs and only decided to launch because there was actually some value add for the SPs.

One option is obviously still that the mgmt decides to go full-speed without knowing whether the current direction is right or not, but Joey Levin does not strike me to belong to this category. 

And in case someone from Angi reads this 😄I would love to have SP retention in the monthly metrics (they only shared in 2020 Q3 95% monthly for advertising list SPs, which is only about 54% annually). Also it's not clear to me whether that's only for Angi's list or also the market place. So would be extremely curious on how this evolves over time with the new features.

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  • 2 weeks later...

 

Interesting clip with the Redfin CEO on low housing inventory. My personal view has been that once the economy re-opens and rate start to climb up the great dash to move to suburb will slow down. As folks settle down and start enjoying life.

.I of course have no global view on the housing market but listening to this clip, they see this (bias view for sure) as a multi-year event that igniting a housing construction boom given the low inventory. So, does that mean lumber prices will stick for some times if this rally has some legs.

Redfin: U.S. Housing Inventory at Record Low, Getting Worse - Bloomberg 

On a different note, all these houses that have been bought by the newer generation using apps like Zillow, Redfins or Opendoor, will probably come with an owner that is more likely than not make use of services like ANGI as oppose to call up contractors like I do to get a quote. The opportunity is there for ANGI, the hard part I guess is execution and having that pipeline of "pros" that haven interest.

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