The popularity of Rover (ROVR) keeps growing. The leading app and website that matches dog and cat owners with vetted locals skilled in pet sitting, pet boarding, and dog walking posted mixed financial results this week. Revenue rose 37% to $52 million in the fourth quarter, comfortably ahead of the 32% that analysts were expecting.
Rover also surprised on the bottom line, posting a profit of $0.03 a share for the seasonally potent holiday quarter. Wall Street pros were targeting merely breakeven results for the pet placer. Guidance wasn't as encouraging, but it wasn't just Rover's fresh financials that were all over the place like a feverishly clawed kitty litter box. Rover's stock also went for a walk.
Shares of Rover initially fell 6% in Monday's after-hours trading, and it remained lower for pre-market indicators on Tuesday morning. Momentum hit different when the trading bell went off on Tuesday. Rover stock was trading 13% higher two hours into Tuesday's market session. In short, Rover stock played fetch.
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It's reigning cats and dogs
Rover feels like a great play for both the reopening of the economy and the corporate call to get folks working again from the office. Folks took in a lot of new dogs and cats -- and other pets outside of Rover's purview -- during the early days of the pandemic. You were going to be home alone a lot, and furry friends can offer instant and loyal companionship.
As you can imagine, the initial wave of pet adoptions was not good for Rover. You took in a new member of the family because you were going to be home a lot. You could walk your own dog and watch your own cat. You surely weren't going to travel, so there was no need to find a place to board your comfort creature.
Rover went from growing its revenue by 33% in 2019 to seeing it cut nearly in half with a 49% plunge in 2020. As restrictions started to ease up in 2021, long overdue social outings and revenge travel found folks returning to Rover to find well-reviewed service providers. Revenue soared 125% for Rover in 2021, more than offsetting the plummet of 2020.
With last year's fourth quarter in the books, we can close out the financials for 2022. Rover's top line climbed 58% to $174 million last year, with the headiest growth front-loaded early in 2022 when the comparisons were easier.
Rover's guidance is what initially scared investors following this week's report. It sees $37 million to $39 million in revenue for the current quarter. The sequential drop isn't a problem. This is a seasonal business, with the fourth quarter spiking with holiday travel and shopping errands calling for boarding and pet-sitting requests. At the midpoint of $38 million, this translates to 37% year-over-year revenue growth, matching the better-than-expected fourth-quarter performance. The rub here is that analysts were modeling a 45% increase.
Growth will continue to decelerate. The $205 million to $215 million that Rover is eyeing for 2023 is just a 21% increase at the midpoint. This is also well short of the 27% top-line uptick that Wall Street was modeling. A silver lining for the full-year forecast is that Rover expects to generate $25 million to $30 million in adjusted EBITDA, a healthy jump from the $20.8 million it just delivered for all of 2022.
The slowdown is still not ideal. Since investors already know about Rover's outlook calling for 37% growth in the first quarter, this means revenue growth in the teens for the final nine months of 2023. It doesn't have to play out that way. Companies are starting to demand that employees who worked remotely for the past three years start putting in some face time in the office. It's a gradual tweak to workforce norms, but one that should get pet owners back on the Rover app.
So why did a stock with a "beat and deflate" report -- typically a dinner bell for bears -- open higher on Tuesday? It could be the value in the shares. As a broken special purpose acquisition company (SPAC) currently trading in the single digits, Rover is a lot cheaper than it was at its roughly $10 debut in 2021. Rover is also flush with cash, and with its improving profitability, it did announce plans for a $50 million share buyback.
There was also an encouraging analyst update on Tuesday morning. Maria Ripps at Canaccord is sticking to her buy rating, arguing that the stock remains attractive as long as we don't see a material disruption to travel patterns. She did lower her price target to $7 from $8, but that is still 85% ahead of where the stock closed on Monday. Apparently every dog has its day.
