ANGI Homeservices Inc.
ANGI Homeservices Inc. on Thursday reported a quarter that fell just shy of expectations, but guided for a rebound in 2019 as investments in capacity-building bear fruit.
For the online home-services marketplace, 2018 was seen as a year in which a merger between Angie’s List and HomeAdvisor took shape. Full-year earnings of $260 million were 96% of the company’s guidance, CEO Brandon Ridenour pointed out, and missed largely because the company didn’t have enough capacity – that is, enough supply – to meet demand.
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Supply, for ANGI ANGI, -1.82% , means a cadre of providers who can plaster a wall, unclog a sink, renovate a kitchen, or replace a roof. Additional investments in capacity have already proven out, Ridenour said, and a late-year push into consumer marketing should reap dividends in 2019.
As anyone who’s ever tried to hire for a home-services project knows, it’s hard to find good people when you need them. ANGI’s value proposition was, at first, its ability to leverage modern technology to make matches between needy homeowners and available providers.
But the company realized demand was still too great, Ridenour explained, and spent several months over the course of 2018 working on other ways to boost supply. One approach: what it calls the “opt-in” product, which allows service providers to broaden the range of jobs to which the platform will match them, either by geography or by type of work.
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“The most important factor that determines whether you can grow or not is service capacity,” Ridenour told MarketWatch. “At the end of the third quarter and all through the fourth, we saw stronger service provider monetization than we’ve seen in a long time. That’s a strong signal we can meet consumer demand.”
That allowed the company to start investing more heavily in consumer outreach – including a Super Bowl ad – and Ridenour says that’s already being reflected in “marketing dollars really starting to work.”
Growth in both service requests and service providers has been steady, as illustrated in the chart above, and management is forecasting 25% growth in revenue in 2019 to reflect that.
Revenue growth is one of the key questions for Raymond James analysts, who wrote that “ANGI will emerge a larger and stronger business” if the company can maintain a 20-25% pace of growth “for the medium term.”
“Conversely, if spending is just the new normal, we expect there will be increased scrutiny on terminal margin and repeat consumer behavior.” The Raymond James analysts have an “outperform” rating on the stock, while the mean rating from analysts surveyed by FactSet is “buy.” The FactSet consensus target price is $21.50, a 26% premium over Friday trading levels.
Read: This is why analysts are through the roof on ANGI Homeservices
