Home services online marketplace ANGI (NASDAQ: ANGI) missed analyst expectations in Q3 FY2022 quarter, with revenue up 7.9% year on year to $498 million. Angi made a GAAP loss of $17.4 million, down on its loss of $16.6 million, in the same quarter last year.
Angi (ANGI) Q3 FY2022 Highlights:
- Revenue: $498 million vs analyst estimates of $501.3 million (0.66% miss)
- EPS: -$0.03 vs analyst estimates of -$0.03 (13.9% beat)
- Free cash flow was negative $29.1 million, compared to negative free cash flow of $27.5 million in previous quarter
- Gross Margin (GAAP): 78.1%, in line with same quarter last year
- Domestic Customer Service Requests : 7.78 million, down 923 thousand year on year
Created by IAC’s mergers of Angie’s List and HomeAdvisor, ANGI (NASDAQ: ANGI) operates the largest online marketplace for home services in the US.
Angi is an online marketplace focused on the large and very fragmented home services market. The marketplace seeks to match consumers' service requests with service professionals for a variety of home projects – everything from hanging a television to redoing a kitchen. Customers have the option to ask for a bid for a project or choose from a fixed price for a service, with the latter option the increasing focus for the business as consumers prefer the quicker time to service and lack of negotiation, while service providers who respond get assured revenue, rather than a negotiation or a fruitless waste of their advertising dollars.
For US homeowners who are generally faced with 6-10 household jobs per year, from replacing a dishwasher or boiler to wiring a new home entertainment system, Angi provides an aggregated collection of peer reviewed certified local service providers. For the service providers, Angi is another customer acquisition tool, where they can set defined budgets and measure how much business is coming in.
Many companies have tried their hand at building online marketplaces for home services but have struggled to match supply and demand; Angi is by far the largest platform in the US.
The iPhone changed the world, ushering in the era of the “always-on” internet and “on-demand” services - anything someone could want is just a few taps away. Likewise, the gig economy sprang up in a similar fashion, with a proliferation of tech-enabled freelance labor marketplaces, which work hand and hand with many on demand services. Individuals can now work on demand too. What began with tech enabled platforms that aggregated riders and drivers has expanded over the past decade to include food delivery, groceries, and now even a plumber or graphic designer are all just a few taps away.
Angi (NASDAQ: ANGI) competitors include Thumbtack, Houzz, Meta Platforms (NASDAQ:FB), Yelp (NYSE: YELP), and Porch Group (NASDAQ: PRCH)
Angi's revenue growth over the last three years has been mediocre, averaging 13.3% annually.
This quarter, Angi reported a slow 7.9% year on year revenue growth, and this result fell short of what analysts were expecting.
Ahead of the earnings results the analysts covering the company were estimating sales to grow 10.4% over the next twelve months.
As a gig economy marketplace, Angi generates revenue growth by a combination of the volume of services users order and how much commission it earns.
Angi has been struggling over the last two years as the number of service requests, a key usage metric for the company, declined 2.66% annually to 7.78 million. This is one of the lowest levels of growth in the consumer internet sector.
In the number of service requests decreased by 923 thousand, a 10.6% drop year on year.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track for every consumer internet product and for Angi it measures how much it earns off each transaction on its platform, a measure of the pricing leverage Angi has with both its users and providers of services.
Angi’s ARPU growth has been decent over the last two years, averaging 19.9%. While its user base shrunk over the last two years, the ability to increase price shows the value of Angi’s platform for its remaining users. This quarter, ARPU grew 20.6% year on year, reaching $63.98 for each of the service requests.
User Acquisition Efficiency
Unlike enterprise software that is typically sold by sales teams, consumer internet businesses like Angi grow by a combination of product virality, paid advertisement or incentives.
It is very expensive for Angi to acquire new users, with the company spending 67.3% of its gross profit on marketing over the last year. This low level of sales and marketing efficiency indicates a highly competitive environment, with little differentiation between Angi and its peers.
Earnings & Free Cash Flow
Investors typically look at a company’s operating income to get a sense of how profitable a core business is. Adjusted EBITDA is the most common profitability metric for consumer internet companies, similar to operating profit, but removes various one time or non-cash expenses to give a more normalized measure of profitability.
Angi's EBITDA was $22.9 million this quarter, which translates to a 4.59% margin. Over the last twelve months Angi has shown above-average profitability for a consumer internet business with average EBITDA margins of 1.23%.
If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Angi burned through $29.1 million in Q3.
Angi has burned through $122 million in cash over the last twelve months, resulting in a mediocre -6.54% free cash flow margin. This below average FCF margin is a result of Angi's need to heavily invest in the business to continue to penetrate its market.
Key Takeaways from Angi's Q3 Results
Since it has still been burning cash over the last twelve months it is worth keeping an eye on Angi’s balance sheet, but we note that with a market capitalization of $976.3 million and more than $328.7 million in cash, the company has the capacity to continue to prioritise growth over profitability.
We struggled to find many strong positives in these results. On the other hand, there was a decline in number of users and it missed analysts' revenue expectations. Overall, it seems to us that this was a complicated quarter for Angi. The company is down 0.78% on the results and currently trades at $1.9 per share.
Is Now The Time?
When considering Angi, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in the case of Angi we will be cheering from the sidelines. Its revenue growth has been mediocre. And while its ARPU is growing, the downside is that its user growth has been lackluster and its sales and marketing spend is very high compared to other consumer internet businesses.
At the moment Angi trades at next twelve months EV/EBITDA 14.5x. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.
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