What happened
Shares of Angi (ANGI -1.44%) slumped as much as 13.4% this week, according to data from S&P Global Market Intelligence. The home repair and contractor marketplace, which is majority owned by IAC, reported strong quarterly earnings but pointed to disappointing business trends for this upcoming quarter. As of the close on Thursday, Aug. 11, the stock is down 13.2% this week.
So what
Angi reported second-quarter earnings after the close on Aug. 9. Revenue was $515.8 million, up 23% year over year, with a net loss of $0.05 per share. These are better than the consensus analyst estimates, which called for $500.5 million in revenue and a loss of $0.06 per share. Angi's business seemed to be humming along just fine in the second quarter, which usually means investors would bid up the stock in the days following the results. But that did not occur.
So why did Angi's stock sink in the following trading days? It all comes down to the data the company gave out for July, the month after the end of the second quarter. In July, total revenue growth decelerated to 10% year over year. This is considerably worse than the 27% and 24% year-over-year growth the company experienced in June and May, respectively. With the economy slowing down, it is possible the need for home repair and contractors is decreasing, therefore decreasing the demand for Angi's marketplace.
ANGI Free Cash Flow data by YCharts
Angi needs to grow, too, because it is currently unprofitable. Free cash flow is negative $142.6 million over the last 12 months as the company has invested heavily into its direct service business. It will need to continue growing revenue at a high rate (something that did not happen in July) in order to start generating positive free cash flow.
Now what
Angi stock currently trades at a market cap of $2.5 billion. In 2022, it is expected to generate around $1.9 billion in revenue and slightly negative earnings per share. With the stock down almost 50% year to date, now could be a good time to buy shares of the stock if you are a believer in the home repair and contractor marketplace model over the long term. The stock is cheap and could provide solid returns over the next few years, although it is a lot riskier than other securities given the business is still unprofitable.
