Should You Care About Care.com’s IPO?

Care.com is an online home-caregiver marketplace that is soon to be publicly traded. While this might be the first time that you've heard of Care.com, its growth matches high-profile industry peers. And after hard deliberation, investors might find Zillow (NASDAQ: Z  ) , Yelp (NYSE: YELP  ) , and Angie's List (NASDAQ: ANGI  ) to be somewhat similar. However, does this fact make Care.com an IPO buying opportunity?

What is Care.com?
Care.com is a marketplace of at-home caregivers. It is similar to several other Internet-based companies, but not exactly like any other company.

Yelp is a review site, and earns the majority of its revenue through advertising. Care.com is also a review site to some extent, creating a social network of caregivers and care-seekers (families), and also of various services that the company provides. However, Care.com is not totally reliant upon advertising, having its own niche and revenue-stream that extends outward.

Zillow is a real-estate marketplace. So, both it and Care.com have their own marketplaces. Care.com earns the majority of its revenue through subscriptions/fees by care-seekers; Zillow earns the majority of its revenue by agents via fees/subscriptions for advertising on the site. Therefore, these two companies are very similar in terms of operating approach, but clearly differ in the product being offered.

Finally, Angie's List, which is also a review site but charges members via subscription, is much like Care.com.

Is Care.com being offered at a fair price?
Care.com has filed its S-1 and is prepared to price at $14-$16 per share, or a market cap between $469 million and $536 million. This expected market capitalization would imply a price-to-sales ratio around 6-7, which isn't bad compared to most of its peers.

Company

Price/Sales Ratio

Yelp

25.5

Zillow

19.5

Angie's List

3.9

As you can see, Yelp and Zillow trade at multiples that far exceed seven times sales.

Angie's List, on the other hand, is very cheap, which is mostly due to a particularly high short ratio of 16.4 due to questionable business practices. In particular, famed short-sellers from Citron Research have often detailed Angie's aggressive accounting, declining revenue-per-member numbers, and reviews that can't be trusted, due to service providers paying fees and receiving great reviews on the site. As a result of these widely debated complaints, Angie's List has not traded with the same level of momentum as its peers.

With the exception of Angie's List, you can see that a the expected Care.com sales ratio would be a highly attractive valuation for the company. It definitely beats the 58 times sales that we've seen with Twitter.

However, as all investors know, an Internet-based company's valuation or premium is a reflection of its growth and upside potential. With that said, let's take a look at how the four companies stack-up in the growth department, or at least in 2013.

Company

2013 Revenue Growth

Care.com

81%

Yelp

63.6%

Zillow

67.1%

Angie's List

59.4%

Clearly, Care.com is the fastest grower in a booming bunch of companies. And what's even more impressive is that according to its S-1, its sales/marketing expenses rose just 57% in the same period, far less than revenue growth. This signals that Care.com is growing at a faster rate than its spending, which is a good sign for long-term profitability. Thus, if we use just what we've discussed, it seems reasonable to suggest that at $14-$16 per share, Care.com is a great opportunity, and that it's actually worth a lot more based on its peers.

Is Care.com a value opportunity?
2013 was really a breakout year for Care.com, putting the company on the map. But as all investors know, if you're going to pay a high premium for an Internet-based company, then you have to know that there are solid long-term growth opportunities.

With that said, Care.com is in a good place: It earns most of its sales through one service (membership fees), has large advertising capabilities with 6.4 million monthly unique visitors, and operates a service where all members benefit. To specify, families looking for caregivers can post jobs, interview, and find an employee, while caregivers can find work. Hence, the business model benefits all involved.

Moreover, what's really encouraging is that Care.com is a young company, and the IPO will bring a lot of attention to its services. But also, aside from child and senior care, the company could always branch out into other career-related services, much like LinkedIn has accomplished. Therefore, the ceiling appears high for Care.com, and with 20 times sales being the standard for online companies, its valuation has a lot of room to run before being called expensive.

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