Since Angi (NASDAQ:ANGI) rebranded earlier this year, one initiative has taken precedent above all others: Angi Services.

Angi Services, the direct-booking model that the company began ramping up last year, differs from the company's core business of selling ads and generating leads for home service professionals. Angi Services has the ability to increase customer satisfaction on both ends of its marketplace, providing a better experience for homeowners looking for a simple way to get work done and for service pros who appreciate a booked job being brought to them.

It also gives the company direct exposure to a $500 billion addressable market across home services as opposed to just selling ads and leads, as CEO Oisin Hanrahan explained on the earnings call.

In its third-quarter earnings report, the company restructured its financial reporting to highlight Angi Services for the first time. The segment's sales grew 160% year over year to $117.4 million, while the core ads and leads business was flat at $326.2 million, showing that demand is shifting to Angi Services. About half of that growth came from its acquisition of Total Home Roofing in July, a company that has a similar business model to Angi in which it took in leads from homeowners and then found contractors to take the jobs.

Different views of the Angi app on  smartphones.

In an interview with The Motley Fool, Hanrahan said that the business, now known as Angi Roofing, is growing fast, is already available in about a dozen markets, and will soon be in five more. Roofing has a lot of the qualities that work in the company's favor in a category, including a high average order value and a large addressable market, which he estimates at $50 billion.

Looking ahead, Hanrahan said the company was open to using strategic acquisitions in similar high-value categories to grow the business. Given that its majority owner is IAC, the holding company with a long history of successful acquisitions, it wouldn't be surprising to see it look to that for further growth.

Tapping a data trove

In October, Angi hired Ercan Kamber as its Chief Data Officer to help it make better use of the millions of service requests it gets on its platform every year. Angi's business generates tons of data, but historically, the company has done little with it. For example, the company only sets prices for its leads once a year. An algorithmic model could adjust its pricing frequently to reflect the underlying supply and demand in the market and better monetize those leads. 

Over the long term, Hanrahan envisions the Angi app having information about individual homes so that when you buy a new home, you'll know the make and model of the appliances and the work history on the home. Such information would be powerful for homeowners and would give the company a significant competitive advantage, as there's no other company close to doing something like that.

Playing the long game

Hanrahan is only in his first year running the company, and there is still a lot of work to be done to bring Angi to its potential. The market was turned off by the report, as the stock fell 7.7%, even though it beat revenue and earnings expectations. The flat growth in the leads and ads business may have led some to sell, while the company's organic revenue growth was only around 9% as the Total Home Roofing acquisition accounted for half the growth in Angi Services.

Angi is also spending aggressively on growing the Services business and on other strategic priorities. As a result, the company expects adjusted earnings before interest, taxation, depreciation, and amortization (EBITDA) to be breakeven over the near term while targeting high-teens revenue growth. However, as an e-commerce marketplace, the business has considerable profit potential, and the company believes the leads and ads business will drive a 35% EBITDA margin over the long term.

Angi has a lot of levers to pull to penetrate the $500 billion addressable market and build a profitable business. In addition to Angi Services and the data initiative, the company also launched a membership program, Angi Key, which offers benefits like 20% discounts on Angi Services jobs for $30 a year. 

It will take time for these moves to pay off, and investors will have to be patient, but the story is worth sticking around for.

 
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