Nearly two months ago, Angi (ANGI -1.44%), the company formerly known as ANGI Homeservices, announced a rebrand. The company refreshed its logo and brought together its two principal brands, Angie's List and HomeAdvisors, under the name Angi.
The rebrand was the first major step under new CEO Oisin Hanrahan, who wants to streamline the organization, focus its mission on delivering value for customers and service providers, and grow new pre-priced Angi Services, where the company books jobs itself and then hands them off to service providers.
Angi reported earnings last Thursday for the first time since the rebranding announcement, reporting revenue growth of 13% to $387 million with adjusted EBITDA down 33% $23.2 million, in part due to ongoing investments in Angi Services.
Angi has long been a difficult company for investors to value. The company is majority-owned by IAC (IAC), the holding company that has shepherded companies like Match Group and Expedia to industry-leading positions. It was formed by a 2017 merger of Angie's List and HomeAdvisor, which was orchestrated by IAC. It's the leading company in its industry by a wide margin, but it's also struggled to harness the opportunity in home services, which includes everything from plumbing to landscaping to house cleaning, a total market Hanrahan says is worth $500 billion. For comparison, Angi's 2020 revenue was just above $1 billion.
Image source: Angi.
Near-term challenges and long-term opportunities
With pandemic-related noise in the comparisons to a year ago and challenges related to the rebrand, including a loss in near-term search traffic, it will be difficult to evaluate Angi's rebranding strategy by quarterly results this year, though progress in Angi Services should offer some clues.
Management expects mid-teens revenue growth rate for the second and third quarters before returning to around 20% revenue growth in the fourth quarter, in line with its long-term guidance of 20% top-line growth. It also expects adjusted EBITDA margin to be at single-digit levels as the company invests in the pre-priced services business.
CFO Glenn Schiffman warned on the earnings call that the rebranding strategy -- along with Angi Services' growth -- will be "a slow build, and the headwinds could continue into the first quarter of next year." Hanrahan echoed that sentiment, but also noted the long-term opportunity, saying, "It's probably going to cost more than we think, but it's probably going to grow faster than you think."
Rebranding the business and building a new business model will be a big project and take years to reach fruition, but the company is targeting a $500 billion, highly fragmented, offline market that is ripe for an online platform like Angi. Additionally, the company is adding ancillary services like payments and a subscription membership that should boost frequency from both customers and service providers, further building out its ecosystem and creating competitive advantages.
One reason to bet on Angi
Angi Services, which launched in 2019, is off to a strong start. Revenue from the pre-priced offering grew 66% in the first quarter to $55 million, making up about 15% of total revenue. What was especially valuable about that growth, according to Hanrahan, is that it came with no incremental marketing spend, making the category a huge potential profit driver at scale.
In an interview, Hanrahan underscored the potential of Angi Services, saying, "The unbelievable part of that business is that it is abnormal to have a business doing $250 million in revenue, growing 66% year on year, and not spending an incremental dime on consumer marketing." He explained that the company is able to do that because "We have this engine of excess demand from our regular leads and ads business." In other words, the customer demand for a such a product is already there.
During the crisis, Angi saw a surge in demand from consumers, though many of those service requests went unmonetized. There is no doubt that the business offers value for homeowners, but the company has historically struggled to meet demand with enough supply. Angi Services offers one way to fix that, as a priced-out job is much more attractive to a service professional than a lead that may not go anywhere. Similarly, the growth of the company's payments platform, which is free for service providers to use, also adds value for them and strengthens their relationship with Angi.
The company plans to invest $60 million in Angi Services this year to make onboarding service providers easier and to build out pricing models in each one of its hundreds of categories. There's work to be done, but the path to success is clear -- and new features like the subscription program, which offers discounts of up to 20% on jobs for a $30 annual fee, as well as financing through Affirm, will only help it reach that goal.
2021 will be a transitional year for the company, but with a market cap of just $7 billion, the upside potential for the growth stock is substantial if it can execute on the rebranding strategy and grow Angi Services.
