angi homeservices · 2019-12-10 · description angi consists of a series of businesses...

12/10/2019

@icebergdevalor

ANGI Homeservices

-When those dark

clouds all disappear

Investment summary

• HomeAdvisor is the largest home services marketplace in the US

• A still-nascent online transition in the industry should be a multi-year tailwind for ANGI

• Recent missteps in performance advertising have increased fears of Google

• However, compared to usual Google prays, ANGI is a much more defendable business

• Additionally, the company is transitioning to an on-demand platform, changing its business profile

• ANGI is the leader of its industry and it is led by IAC, one of the most capable operators

• Despite its many qualities, ANGI is still a forgotten controlled company; always in the shadow of its grown-up brother MTCH.

12/10/2019 ANGI Homervices Pitch | @icebergdevalor 2

Execution in fixed price services, loyalty improvements and the short pressure relief

from the MTCH spin should set ANGI as a powerful platform with years of growth ahead

Description

ANGI consists of a series of businesses

• HomeAdvisor• Formerly ServiceMagic, it is the biggest home services marketplace in the US

• People search for a given service and (pre-fixed price) they receive the call of up to 4 contractors• HA collects a fee for each lead it provides the contractors + other subscription payments

• The equivalent take rate of the lead is around 4% of the GMV (services can be big and complex)

• Angie’s List• A marketing company for contractors, it was the original public company

• After years of growth (but not profitability), Angie’s loyalty rates fell dramatically• IAC offered a purchase price of $500M (<2x revenue) and reverse-merged HomeAdvisor with ANGI

• Angie’s List monetization has been de-emphasized while increasing its references to HA.

• Handy • Fixed-price focused home services startup recently acquired by ANGI

• International• A series of international investments in the home services sector

• Others• ANGI has acquired/disposed various related business: Fixd (warranty), mHelpDesk (SaaS), Felix (leads), etc.

12/10/2019 ANGI Homervices Pitch | @icebergdevalor 3

On-Demand

Economy

Two-sided network

Millennial Home

Ownership

• ANGI sits in the middle of a market with attractive characteristics

• On-demand economy trend

• The wave of millennial home ownership

• Flywheel-type, two-sided network

• Its relative size is much bigger than competitors

• Despite the many startups, the space isn’t still flooded with VC/PE/Megacap money.

• The market is • Hyperlocal and fragmented

• 2/3 of requests are not discretional

• +80% of the transactions are offline

• Pro’s still skeptical about online

12/10/2019 ANGI Homervices Pitch | @icebergdevalor 4

Attractive market

Competent execution could translate into a

multiyear +15% GMV CAGR on the back of

massive offline-to-online shift

Home services sector • Extremely fragmented, small and often offline

• Incumbents: Homeserve, Frontdoor, FSV

• New wave (reminiscent of pre-Tinder in dating)

• No clear winner

• Lots of startups which can attract critical mass and be profitable

• Margins, even with small revenues can be very good (+20% FCF)

12/10/2019 ANGI Homervices Pitch | @icebergdevalor 5

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

2

4

6

8

10

12

14

16

2014 2015 2016 2017 2018 2019

MyHammer Holdings

Revenue FCF %

Marketplace vs SaaS/Organic• Many service contractors don’t like online lead generation companies. Hence, the “HomeAdvisor is a fraud”

comments.

• These kind of dynamics are common with marketplaces: for example, hotels hate Booking and, still, this has not prevented BKNG from being a tremendous compounding story:

• Contractors would prefer to create their own brand and organic traffic (Google/Facebook campaigns, ServiceTitan type of software).

• On the other hand, consumers would prefer having a transparent platform that integrated all the service providers where they could get the best value.

• This SaaS/Organic vs Marketplace tension will always exist but should not pose an existential risk to ANGI.

• Compared to Booking, ANGI has various advantages at this battle:

• The service request process is much more complex and involves friction. This prevents Google from offering a comparable search process.

• Contractors are smaller/more fragmented and often more “traditional” (meaning they often don’t have good digital skills).

12/10/2019 ANGI Homervices Pitch | @icebergdevalor 6

The fragmented and complex nature of the industry has made home services more

difficult for Google to crack, even in the current state (lead-gen based) of the business.

Fixed Price + App• However, the lead-gen model has its limits

• Contractors don’t like it

• It involves a lot of hassle on the request side

• 40% of requests don’t get any answer

• The take rate is only 4% of GMV

• Google is a real threat

• ANGI is currently transitioning to a fixed price model• An UBER-like system where the price of the service is shown upfront

• ANGI does the payment processing

• Although this transition has been in the works from 2017. It has accelerated lately:• 10/11/2018 - ANGI purchases Handy – A start-up that offered fixed-price home services for house

cleaning and others

• 8/7/2019 - Oisin Hanrahan (Handy founder) is named Chief Product Officer at ANGI

• 2019Q3 – Fixed price services number go from 33/500 beginning 2019 to 133/500.

• These services are still around 5% of total revenue.

• Currently FP services are money losing, dragging the P&L for some quarters.

• This transition makes ANGI to have more organic traffic (app)

• Equally, solved the main painpoint from the contractor side “they only offer leads”.

• The app is being pushed vs web – Loyalty improvement

12/10/2019 ANGI Homervices Pitch | @icebergdevalor 7

Take rate and GMV• In 2019, ANGI will do around $46B requested GMV, $28B serviced GMV at around 5% overall take rate.

• There is $18B in requested GMV that isn’t serviced. This slack is expected to be reduced due to FP services.

• Generally, for marketplaces, take rate depends on the standardization of the job:

• Standardized (low price) jobs – High take rate: i.e. Food delivery, Ride-sharing

• Complex (high price) jobs – Low take rate: i.e. Upwork, ANGI

• For ANGI, the more jobs become fixed price

• Take rate improves

• Customer satisfaction improves – Less friction (“Uber-like”)

• Contractor retention improves – They get real jobs instead of leads (main pain point)

12/10/2019 ANGI Homervices Pitch | @icebergdevalor 8

0%

10%

20%

30%

40%

50%

60%

LYFT FVRR UPWK TKWY

3-year Growth

Take rate GMV

• Current take rate for fixed-price (mid-teens) could be pushed to above-twenties like peer companies have achieved, without sacrificing GMV growth (i.e. LYFT 27%, FVRR 25%)

As fixed-price as share of rGMV increases, sGMV and take

rate, increase. ANGI becomes top-of-the-funnel and

demand/supply LTV/CACs improve.

The ANGI Iceberg

• For a company at $4B, ANGI’s rGMV is around $46B

• Companies that have such a big influnce are often awarded big revenue multiples; this is not the case for ANGI.

• Although a different business, Frontdoor will do around 1.4B in revenue

• However, this figure doesn’t compare to ANGI’s revenue but, actually, to ANGI’s Serviced GMV

• This shows how two companies with similar market cap and revenues can widely differ in the amount of business they influence

• It is a matter of execution to bridge the gap between total influence and actual business turnover.

12/10/2019 ANGI Homervices Pitch | @icebergdevalor 9

Requested GMV

$46B

Serviced GMV

$27.5B

Revenue

$1.35B

IAC – Digital Buy and Build• ANGI is managed by one of the savvyest online business

operators

• As with other IAC franchises, ANGI is a product of years of IAC buying, building and spinning businesses

• Including ANGI, IAC has been able to successfully balance creating in-house companies while buying new assets.

12/10/2019 ANGI Homervices Pitch | @icebergdevalor 10

ANGI Special Situation• HomeAdvisor was being public was premature for the company and only happened due to the ANGI

reverse merger

• Even today, the company is not a full grown-up

• They don’t have their own IR or even a quarterly slide deck

• They don’t report many typical marketplace metrics: GMV, take rate, LTV/CAC

• Selling and marketing is still a huge part of the P&L

• It’s a controlled company – IAC owns 87% of the float.

• A significant portion of the free float is short due to arbitrage reasons

• For these reasons ANGI is often forgotten behind it’s successful brother MTCH

• It is usual for MTCH bulls to be long IAC and short ANGI in order to gain exposure the IAC stub

12/10/2019 ANGI Homervices Pitch | @icebergdevalor 11

The MTCH full spin should alleviate many of the non-fundamental pressure against the ANGI stock price

Selling and Marketing• Currently around 55% of ANGI revenue is used for marketing expenses

• Just the TV spent for HA is much greater than other bigger brands

• This shows poor return on current advertising dollars (lack of loyalty)

• This expense is equally spent in demand weighted (36%/19%)

-

• A shift to fixed-price + app should gradually allow to leverage ad spend

• A SCM-focused company like Booking spends a third of its revenue in marketing (BKNG organic traffic is undisclosed, but should be below 40%)

• ANGI’s organic traffic is around 60% (+20% SEO, +20SCM)

• Demographic tailwind: younger users tend to prefer app vs web

• HA is being used 1.8 times/year per user from a potential 8 times/year: r repeat usage increase improves loyalty.

• Nextdoor/Reology-type partnerships help lower CAC

12/10/2019 ANGI Homervices Pitch | @icebergdevalor 12

Selling and Marketing is ANGI’s biggest P&L burden. None of the

comparable companies, even small home service webs, come close to this.

Minimal loyalty improvements should yield better ad-dollar efficiency.

ANGI Valuation• ANGI’s valuation depends on a variety of factors

• Requested/Serviced GMV, Fixed-Price share, FP take rate and marketing efficiency

• Conservative metrics on those parameters yield an attractive return for a company priced at $4B (@7.9 a share)

12/10/2019 ANGI Homervices Pitch | @icebergdevalor 13

2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E

Total Request GMV 41.7 45.8 51.3 57.2 63.5 70.5 77.9

TR GMV Growth % 10.0% 12.0% 11.5% 11.0% 11.0% 10.5%

Total Serviced GMV 25.0 27.5 31.1 34.9 39.1 43.7 48.7

60% 60.0% 60.5% 61.0% 61.5% 62.0% 62.5%

Lead Model Take Rate 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3%

Lead Model GMV share % 98.0% 94.0% 91.0% 88.0% 85.0% 82.0% 79.0%

Fixed Price - Take Rate 13.0% 15.0% 15.0% 15.5% 15.7% 15.9% 16.2%

Fixed Price GMV share % 2.0% 6.0% 9.0% 12.0% 15.0% 18.0% 21.0%

Overall - Take Rate 4.5% 4.9% 5.3% 5.6% 6.0% 6.4% 6.8%

Net Revenue Total 283.5 361.0 499.0 736.4 1,132.0 1,355.0 1,634.5 1,970.6 2,348.3 2,793.0 3,311.4

Revenue Growth % 27.3% 38.2% 47.6% 53.7% 19.7% 20.6% 20.6% 19.2% 18.9% 18.6%

GM 261.2 338.1 473.2 702.3 1,076.3 1,307.6 1,578.9 1,905.5 2,270.8 2,700.9 3,202.1

GM % 92.1% 93.7% 94.8% 95.4% 95.1% 96.5% 96.6% 96.7% 96.7% 96.7% 96.7%

Selling & Markerting - Supply 70.8 85.9 109.9 181.7 206.8 487.8 302.4 364.6 434.4 502.7 596.0

Selling & Markering - Supply % 25.0% 23.8% 22.0% 24.7% 18.3% 19.0% 18.5% 18.5% 18.5% 18.0% 18.0%

Selling & Markerting - Demand 90.0 140.0 196.8 282.3 334.7 400.0 547.6 620.7 692.7 782.1 861.0

Selling & Markering - Demand % 31.7% 38.8% 39.4% 38.3% 29.6% 36.0% 33.5% 31.5% 29.5% 28.0% 26.0%

Selling & Markering - Total 56.7% 62.6% 61.5% 63.0% 47.8% 55.0% 52.0% 50.0% 48.0% 46.0% 44.0%

General & Administrative 71.8 86.7 110.0 300.0 323.5 338.8 375.9 433.5 528.4 586.5 695.4

General & Administrative % 25.3% 24.0% 22.0% 40.7% 28.6% 25.0% 23.0% 22.0% 22.5% 21.0% 21.0%

Development & Other 27.0 26.5 32.0 47.9 61.1 63.7 76.8 90.6 105.7 125.7 145.7

Development & Other % 9.5% 7.3% 6.4% 6.5% 5.4% 4.7% 4.7% 4.6% 4.5% 4.5% 4.4%

D&A 16.0 10.5 11.5 37.7 86.5 93.5 114.4 137.9 164.4 195.5 231.8

D&A % 5.6% 2.9% 2.3% 5.1% 7.6% 6.9% 7.0% 7.0% 7.0% 7.0% 7.0%

EBITDA 1.6 -1.0 24.5 -109.6 150.2 17.3 276.2 396.1 509.6 703.8 904.0

EBITDA growth -162.5% -2550.0% -547.3% -237.0% -88.5% 1493.0% 43.4% 28.7% 38.1% 28.4%

EBITDA margin 0.6% -0.3% 4.9% -14.9% 13.3% 1.3% 16.9% 20.1% 21.7% 25.2% 27.3%

Considerations

Risks• Google is a (the) real competitor. Going against Google doesn’t end well usually.

• ANGI markets are hyperlocal. A well-funded competitor could win over ANGI one market at a time.

• Fixed Price is only 5% of revenue and money-losing. ANGI’s success partly depends on it.

• Contractors still don’t like ANGI

• There is a limit to the GMV you can make fixed price due to complexity. This caps the take rate.

• Part of the 40% unmet demand is a natural slack of the marketplace

Upside• Economic cycle protection: 2/3 of ANGI’s demand are non-discretionary, the other part is R&R.

Additionally, if the current tight job market loosens, it attracts more contractors to the platform.

• If the fixed-price transformation is achieved, ANGI margins could be above 35% EBITDA (more food-delivery-like margins)

• A possible VC winter would be a tailwind for ANGI (SCM dollars + contractor retention).

12/10/2019 ANGI Homervices Pitch | @icebergdevalor 14