Angi (ANGI 6.34%), the parent of HomeAdvisor and the rebranded Angie's List, was an early winner in the pandemic as the stock rocketed from single digits in early 2020 to past $19 briefly this February.

Now, in a robust housing market and with demand for home services still stretching capacity across much of the country, Angi stock has pulled back, down nearly 50% from its 52-week-high.

The company's second-quarter earnings report did little to stop that slide. Though the stock actually rose 5% on Aug. 5 when the report came out, it gave up all of those gains in the following session and has continued to fall since then.

During the quarter, Angi posted revenue growth of 12% to $421 million, which missed estimates at $426.3 million. Majority owner IAC (IAC 0.69%) noted that the company's rebranding was taking longer than expected to deliver results. In the IAC shareholder letter, IAC CEO Joey Levin said, "It's an understatement to simply say that the impact of the brand change at Angi was more severe than we expected."

IAC and Angi understood that it would lose some traction with online searches when it rebranded from Angie's List and HomeAdvisor to Angi. But the falloff in traffic to was steeper than expected as the company pulled back on marketing to support the brand.

The Angi app open on several smartphones.

Image source: Angi.

Turnaround in progress

In the past year, Angi has brought in a new CEO, Oisin Hanrahan, the founder of Handy, and launched a rebrand. The company is also building out its Angi Services business, which allows homeowners to book a job like roofing or fencing directly through Angi. Traditionally, Angi's core business was lead generation. Home service providers would pay the company to list themselves on the website, but the bookings and payments themselves were outside of Angi's control.

Now that's changing. With Angi Services, the company is solving two problems. It gives Angi greater control over the booking, and it makes the process easier for homeowners and service providers, by removing the need to haggle and negotiate. That side of the business is seeing tremendous growth as revenue from the segment jumped 127% to $73 million, and that's without spending any incremental marketing dollars. Angi customers come to the site to hire home service providers and are happy to use the Book Now feature. In an interview, Hanrahan noted that Angi Services expands the company's addressable market from tens of billions of dollars to around a half of trillion dollars since it now controls the end-to-end booking, and that will make the company more profitable over the long run. 

Separately, Angi also branded its membership, which is now called Angi Key. The program gives members 20% on all Angi Services jobs for a $30 annual fee. For marketplace bookings, customers will still receive a 20% discount up to a $35 total discount. Following the models of Costco and Amazon Prime, Angi Key should boost customer loyalty and increase jobs performed on the platform, driving long-term growth for the company and creating a flywheel effect.

Buy the dip?

Angi has been a frustrating stock to own since 2017, when IAC engineered the merger between HomeAdvisor and IAC. It's traded in a roller coaster fashion since then, having occasional breakouts only to pull back later. IAC appears to be among the frustrated parties, calling Angi its "biggest work in progress" in the shareholder letter. 

IAC has a long track record of building successful two-sided marketplaces like Match GroupExpedia, TicketMaster, and Vimeo, and Angi fits right into that niche. The company is a leader in its industry, but still competes mostly with word-of-mouth leads. A new generation of millennial homeowners more comfortable making big purchases online should help accelerate the company's growth, but for now the rebrand and the turnaround, which come at a time when labor and materials have been unusually constrained, look like they will take several quarters to play out.

Angi is making the right moves and there's a lot to like with Angi Services and Angi Key, but investors will have to be patient. The upside potential, which includes being the leader in a $500 billion addressable market, is worth sticking around for.