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Why Porch Group Stock Got Crushed Today

By Jon Quast – Aug 17, 2021 at 2:25PM

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Maybe the market is just selling this kind of stock today because the company's financial results looked better than expected.

What happened

Shares of home-services company Porch Group (PRCH -11.30%) got crushed on Tuesday after the company reported financial results for the second quarter of 2021. Many growth stocks are selling off today. So perhaps Porch Group's sell-off is more due to general market volatility because it's hard to find many problems in its quarterly report, as we'll see. Nevertheless, Porch Group stock was down 12% as of 1:30 p.m. EDT today. 

So what

Porch Group went public via a merger with a special purpose acquisition company (SPAC) in December. And its strategy has been growth via acquisitions. That's been a fortuitous combination. As a reminder, SPACs get extra cash from the redemption of public warrants when the stock price is over $18. Porch Group's was, and it was able get $126.8 million from this during the second quarter as a result. During the quarter, it immediately put this capital to work by spending $127.9 million to acquire other companies.

A confused-looking man standing by a desk and holding two pieces of paper in his hands.

Image source: Getty Images.

Porch Group's goal is to offer a range of subscription services to businesses and consumers related to homebuying and homeownership. For example, during the second quarter, it acquired Rynoh, a software-as-a-service company for title companies. As a result of all its acquisitions, the quarter's revenue was up 200% year over year, beating management's guidance. Additionally, it raised full-year guidance to $184 million, which represents 155% growth from 2020.  

Now what

According to the company's filing with the Securities and Exchange Commission, some of Porch Group's revenue growth this year has been organic. And I wouldn't be surprised if the company can keep it up. Many of its newly acquired businesses are complementary to each other, providing significant cross-sell opportunities.

As you'd expect with a company in this position, Porch Group's sales and marketing expenses are ramping up. In the second quarter, it spent 45% of revenue on this one line item. While that's a lot, it seems like money well spent given the acquisition strategy it's executed over the past year.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Porch Group Inc. Stock Quote
Porch Group Inc.
PRCH
$2.04 (-11.30%) $0.26

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