EverQuote's (NASDAQ:EVER) Q1: Strong Sales, Stock Jumps 10.1%

Full Report / May 06, 2024

Online insurance comparison site EverQuote (NASDAQ:EVER) reported Q1 CY2024 results topping analysts' expectations, with revenue down 16.6% year on year to $91.07 million. On top of that, next quarter's revenue guidance ($102.5 million at the midpoint) was surprisingly good and 30.8% above what analysts were expecting. It made a GAAP profit of $0.05 per share, improving from its loss of $0.08 per share in the same quarter last year.

EverQuote (EVER) Q1 CY2024 Highlights:

  • Revenue: $91.07 million vs analyst estimates of $80.3 million (13.4% beat)
  • EPS: $0.05 vs analyst estimates of -$0.07 ($0.12 beat)
  • Revenue Guidance for Q2 CY2024 is $102.5 million at the midpoint, above analyst estimates of $78.36 million
  • Gross Margin (GAAP): 94.5%, in line with the same quarter last year
  • Free Cash Flow of $9.67 million is up from -$1.64 million in the previous quarter
  • Market Capitalization: $755.3 million

Aiming to simplify a once complicated process, EverQuote (NASDAQ:EVER) is an online insurance marketplace where consumers can compare and purchase various types of insurance from different providers

EverQuote is an online insurance marketplace founded in 2011 by Seth Birnbaum and Tomas Revesz, with the aim of revolutionizing the way people shop for and compare insurance policies. EverQuote's primary product is an online platform that allows users to compare and purchase auto, home, renters, and life insurance policies from different insurance companies. The platform uses proprietary analytics and algorithms to match users with insurance providers that offer the best coverage and prices based on their specific needs and budget.

The service provided by EverQuote is essential for customers because shopping for insurance can be a daunting and confusing process, especially for those who are not familiar with the intricacies of insurance policies. With EverQuote, customers can easily and quickly compare policies from different providers and choose the one that suits them best.

EverQuote makes money by charging insurance companies a fee for every lead generated through its platform. This fee is based on the type of insurance policy, the lead's quality, and the competition in the market.

Online Marketplace

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.

Competitors offering an insurance marketplace include Progressive (NYSE:PGR) as well as private companies Farmer’s Insurance and Liberty Mutual.

Sales Growth

EverQuote's revenue has been declining over the last three years, dropping on average by 7.5% annually. This quarter, EverQuote beat analysts' estimates but reported a year on year revenue decline of 16.6%.

EverQuote Total Revenue

Guidance for the next quarter indicates EverQuote is expecting revenue to grow 50.8% year on year to $102.5 million, improving from the 33.3% year-on-year decline it recorded in the comparable quarter last year. Ahead of the earnings results, analysts were projecting sales to grow 27.2% over the next 12 months.

Pricing Power

A company's gross profit margin has a major impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors may ultimately determine the winner in a competitive market, making it a critical metric to track for the long-term investor.

EverQuote's gross profit margin, which tells us how much money the company gets to keep after covering the base cost of its products and services, came in at 94.5% this quarter, down 0.3 percentage points year on year.

For online marketplaces like EverQuote, these aforementioned costs typically include payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard buyers and sellers, such as identity verification. After paying for these expenses, EverQuote had $0.94 for every $1 in revenue to invest in marketing, talent, and the development of new products and services.

EverQuote Gross Margin (GAAP)

EverQuote's gross margins have been trending down over the last year but still averaged 91.9%. Its margins are some of the highest in the consumer internet sector, enabling it to fund large investments in product and marketing during periods of rapid growth to stay one step ahead of the competition.

User Acquisition Efficiency

Consumer internet businesses like EverQuote grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

It's very expensive for EverQuote to acquire new users as the company has spent 89.9% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates a highly competitive environment with little differentiation between EverQuote and its peers.

Profitability & Free Cash Flow

Investors frequently analyze operating income to understand a business's core profitability. Similar to operating income, adjusted EBITDA is the most common profitability metric for consumer internet companies because it removes various one-time or non-cash expenses, offering a more normalized view of a company's profit potential.

EverQuote's EBITDA was $7.59 million this quarter, translating into a 8.3% margin. The company has also shown above-average profitability for a consumer internet business over the last four quarters, with average EBITDA margins of 1%.

EverQuote Adjusted EBITDA Margin

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. EverQuote's free cash flow came in at $9.67 million in Q1, turning positive year on year.

EverQuote Free Cash Flow

EverQuote has generated $9.64 million in free cash flow over the last 12 months, or 3.6% of revenue. This FCF margin stems from its asset-lite business model and enables it to reinvest in its business without depending on the capital markets.

Key Takeaways from EverQuote's Q1 Results

We were impressed by how significantly EverQuote blew past analysts' revenue expectations this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. On the other hand, its revenue growth regrettably slowed. Zooming out, we think this was a solid quarter that shareholders will appreciate despite the slowing topline. The stock is up 10.1% after reporting and currently trades at $23.5 per share.

Is Now The Time?

When considering an investment in EverQuote, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

Although EverQuote isn't a bad business, it probably wouldn't be one of our picks. Its revenue has declined over the last three years, and analysts expect growth to deteriorate from here. And while its impressive gross margins are a wonderful starting point for the overall profitability of the business, unfortunately, its sales and marketing spend is very high compared to other consumer internet businesses.

At the moment, EverQuote trades at 0.0x next 12 months EV-to-EBITDA. In the end, beauty is in the eye of the beholder. While EverQuote wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price right now.

Wall Street analysts covering the company had a one-year price target of $24.34 per share right before these results (compared to the current share price of $23.50).

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