On Wednesday, shares of Angi (ANGI 8.44%) tumbled more than 20% after the home-improvement services company posted a wide loss and flat growth in its legacy business in its fourth-quarter earnings report.
While there were some bright spots in the quarter, the results left investors frustrated once again as the company's turnaround strategy seems to be taking longer than expected. Meanwhile, the company is facing several headwinds.
Overall revenue in the quarter was up 16%, making Q4 2021 its fifth straight quarter of double-digit revenue growth. It was paced by 116% growth from Angi Services, its pre-priced product offering that books jobs for homeowners and service providers. Growth in Angi Services was helped by its acquisition last July of Total Home Roofing (now Angi Roofing), though it's unclear how much of a contribution it made.
What seemed to disappoint investors was a 2% decline in revenue from the ads and leads business, which is still the main source of its revenue. Also, its service requests declined 5% in the quarter, indicating a lower level of demand from a year ago. Angi's operating loss swelled from $4.7 million in the quarter a year ago to $28.9 million as the company spent more on marketing to support the Angi rebrand and its investments in Angi Services.
The company didn't give guidance in the quarterly report but said on the earnings call that it expected 15% to 20% revenue growth this year, in line with its long-term target.
A combination of headwinds
There are a number of factors weighing on the company's performance, but most of them are temporary. When Angi rebranded last March, folding Homeadvisor and Angie's List under the Angi umbrella, it cost the company valuable search traffic, and it's still making up for that loss. Management said on the earnings call that Angi was now seeing more search traffic than Angie's List but had still yet to top HomeAdvisor.
In an interview with The Motley Fool, CEO Oisin Hanrahan noted that comparisons will get easier in March as the company laps the rebrand. Service requests have been on a downward trend in recent months compared to the booming demand during the early days of the pandemic in 2020, when more people were doing home improvement projects. That should also favor the company in the second quarter and beyond.
Finally, Hanrahan noted that the impact of the coronavirus omicron variant, which peaked in much of the country in January, also weighed on performance at the end of Q4 and into January, when revenue grew by just 12%. However, with the highly contagious variant now fading, it should be less of a headwind going forward.
The good news
Despite the stock's plunge, there were some important bright spots to be aware of. Revenue from Angi Services is continuing to ramp higher, making up 27% of total revenue in the quarter. The pre-priced offering is an improvement over Angi's traditional product, which sells ads and leads to service providers, but it does not take the crucial step of booking jobs. The growth in the category shows that it's resonating with both customers and service providers.
The payments component of Angi Services is also seeing strong growth. The company processed more than $100 million in the full year through Angi Pay, its payments platform, an increase of more than fivefold from the previous year.
Finally, the company announced a partnership with Walmart at the end of January. Its services, such as TV mounting or furniture assembly, will be sold alongside Walmart's products. For example, if you buy a TV at Walmart, the retailers can set you up with a service provider from Angi to mount it. The partnership will also apply to larger jobs like painting and flooring.
For now, the deal is exclusive to Walmart, but Hanrahan envisions similar partnerships with other retailers like Target and Lowe's, which already have a relationship with Angi's subsidiary, Handy. Angi's move to tie its fortunes to Walmart, the world's biggest retailer, could be a significant driver of both sales and brand awareness for the company going forward.
The long-term story
With the Walmart partnership and the growth in Angi Services, the company still seems to be on the right track. Hanrahan noted that internal metrics like customer satisfaction and service provider satisfaction are all moving in the right direction.
Still, the overall numbers show that the turnaround is still a work in progress. Given the sell-off and the slow start to 2022, investors may want to wait on the sidelines until it's clear the company is executing on its goals and taking advantage of the massive market in home services.