Providing an online marketplace for dog walking, pet boarding, in-home pet sitting, and similar services, Rover Group (NASDAQ:ROVR) just went public a month ago after around a decade in business. By merging with the SPAC, Nebula Caravel Acquisition Corp., Rover's shares commenced trading on the NASDAQ stock exchange on Aug. 2. However, like most newly listed companies, Rover's shares have been volatile.
But despite the volatility, the stock seems to have been positively received by investors, and is now trading 17% higher since going public. Here are three reasons the market may be right to wag its tail enthusiastically at this pet-related newcomer.
1. Its metrics are improving
Gross bookings through the platform set a new record at $134 million in second-quarter (Q2) 2021. Gross bookings are the total amount of services booked through Rover, from which the company currently receives around 25% in fees, or more popularly known as take rate. This is up from 15% back in 2012 to 2015. Rover is seeing rapid growth in bookings and revenue as COVID-19 lockdowns end. The company notes its revenue grew 3% but is on an upward trajectory.
Additionally, its adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA adjusted for items such as stock-based compensation, merger-related costs, and other expenses not strictly related to the business, achieved a positive figure for the first time, coming in at $2.5 million. New customer growth and existing customer retention also helped to drive its gains.
Total demand jumped 18%, compared to pre-pandemic Q2 2019, while new bookings were up 30.3%, compared to the same quarter. While Rover registered a net loss, it seems to be approaching breakeven, with $12 million in a previous net loss now shrinking to a $2.8 million loss in the most recent quarter.
The company raised its guidance, calling for full-year 2021 net revenue to clock in at $102 million to $110 million. While still low, the company's metrics appear to have momentum in a bullish direction.
2. Rover is acquiring customers more cheaply and retaining them
For a company like Rover, which connects service providers and pet owners rather than providing pet boarding or walking services directly, there's always the risk people will use its service once, then deal directly with the service providers they meet through it. Fortunately for Rover, this doesn't seem to be the case. Customers continue to use its "middleman" services for bookings at an increasing rate.
In a graph accompanying its Q2 earnings report, Rover shows both new bookings and repeat bookings are growing strongly and rebounding from pandemic-year lows.
Effective customer retention attracted the notice of investment bank and analysis firm William Blair & Company when it began analyst coverage of Rover Group on Aug. 26. Assigning an outperform rating, the firm cited customer loyalty as a bulwark of its positive view, remarking in its research note, "while this metric was capped right above 50% for a few years, Rover has now achieved a rebooking rate of over 60%, with plans to reach a long-term rate above 70%."
Rover is both gaining new customers and retaining existing ones at high rates, important drivers of success for its business model. Furthermore, it indicates it's spending less to gain these clients over time. Two years ago, in Q2 2019, acquiring a customer cost the company $38. Today, this figure is $9, a major saving in expenses and an indication Rover is effectively boosting the efficiency and streamlining of its operations.
3. The pet market favors its success
Two trends in Rover Group's market sector appear likely to continue driving growth. Drastic 2020 government lockdowns in response to COVID-19 resulted in a decreased quality of life for many people and triggered a spike in pet ownership in both the U.S. and U.K., Rover's two main markets. American Pet Products Association data shows Americans acquired nearly 11.4 million new pets by October 2020. BBC News reported 3.2 million additional "pandemic pets" in Britain.
The other trend, 2021's economic reopening and the return to work and travel, is creating a large pool of new pet owners needing Rover's services. In its Q2 earnings report, Rover notes that while bookings usually drop 17% in major U.S. states between Q1 and Q2, this year's bookings rose strongly.
Quarter-over-quarter booking surged to 90% in New York, 83% in California, 73% in Texas, and 50% in Florida. The rebound is also visible in the "United Kingdom, the biggest European market for Rover." While still 40% below Q2 2019, gross booking value skyrocketed 250% since Q1, with a 170% rise for the rest of Europe. Rover says the demand is spiking "as domestic travel in the U.K. has increased."
How the future looks for Rover
Though Rover Group's losses are troubling, its performance seems to be strengthening, as it grows its customer base and retains more clients over time. Sharply increased pet ownership during the pandemic is converging with reopening and resumed travel to create mushrooming demand for pet walking, boarding, and sitting services in its biggest markets.
Uncertainty and volatility still remain, but investors interested in consumer discretionary stocks may want to consider this newcomer as a potentially bullish pick moving forward.