When we last heard from ANGI Homeservices (NASDAQ:ANGI) in early May, CEO Brandon Ridenour said the company was starting to see a "V-shaped recovery."

The latest data, in a July 15 shareholder letter from majority owner IAC (NASDAQ:IAC), shows the comeback has exceeded even those expectations as homeowners returned to the platform in full force with lockdowns lifting in May and June. Service requests on its marketplace, which includes the sites HomeAdvisor and Handy, went from declining by 12% and 8% in March and April, respectively, to jumping 27% and 34%, respectively, in May and June.

Ridneour had argued that despite the sudden drop in the company's business during the lockdown, ANGI would see a boost from the pandemic as social distancing and limits on outings like dining out, entertainment, and travel would drive more spending on home improvement as people spent more time at home. 

Those numbers above are among the latest data showing home improvement demand is booming. On Thursday, the Census Bureau's retail sales report showed sales at home improvement stores jumped 17.3% in June on a year-over-year basis, following an 18% increase in May.

The surge in demand also justifies the gains ANGI stock has made in recent months as shares have more than tripled since their bottom in March. But the stock pulled back by 8% on Thursday as ANGI still struggled to convert those requests into sales.

Two men look at home design plans.

Image source: Getty Images.

A good problem to have

While marketplace requests rose 27% in May, monetized transactions only increased 8% and revenue on the marketplace was up 20%. In June, monetized transactions rose 10%, compared with a 34% increase in service requests, and an 18% increase in marketplace revenue. Overall, ANGI saw revenue grow 15% in May and 14% in June as the advertising business, built around Angie's List, slowed. Those results also lag behind the company's long-term goal of generating 20% annual revenue growth.

On the conference call Thursday, Ridenour pointed to a number of factors driving the gap between demand and performance. A number of service providers on the platform are facing similar challenges to ANGI, since most shut down or reduced capacity in March and April. They had laid off workers or downsized as the pandemic hit, and have not been able to ramp up their workforce to match the sudden surge in demand that has accompanied the reopenings.

Similarly, the company is seeing outsize demand in some categories, like a 95% increase in pool installation requests in June, that it simply wouldn't be able to fulfill even in normal times. Requests also tended to be for lower-revenue outdoor services than usual. Some of its home service providers are also struggling with supply chain issues as the pandemic disrupted pipelines of certain materials and lifted prices on commodities like lumber and copper.

Ridenour also noted that the additional unemployment payments may be making it difficult for companies to rehire workers, though he said that almost all of its service providers expect to be at full capacity in 90 days.

Long-term tailwinds

Despite the challenges in balancing supply and demand, Ridenour called the quarter "exceptional" and was optimistic that new products and increased demand would drive a strong second half of the year. He also noted that costs per service request fell 20% and the company was seeing better return on marketing spending thanks to lower ad costs on television and other channels.

The company continues sees big potential from its fixed-price platform, which it started rolling out last year offering customers and service providers straightforward pricing, removing the need for negotiations between homeowners and service providers. ANGI has started adding higher-priced services to the fixed-priced platform, opening up a $200 billion addressable market for the service. Ridenour also said that fixed pricing has the potential to be a majority of the company's business one day since it's demonstrated high customer appeal and good repeat use because it removes a lot of friction in the business.

Additionally, ANGI has introduced a new payment platform to help ease contactless payments and also offers financing to customers. The company even allows service providers to use payments with non-ANGI customers, potentially giving it a piece of that business through financing. 

IAC management said ANGI was continuing to target 35% adjusted EBITDA margins, though that goal would take a back seat in the near future to investments in areas like fixed prices.

While investors may be disappointed that revenue growth in recent months hasn't kept pace with demand, the second half should see improvement as service providers bring back capacity and as demand is likely to remain strong with coronavirus cases elevated and Americans spending more time at home. We'll learn more when the company presents its full second-quarter earnings report in the beginning of August.