What happened
Shares of home-services platform Angi (ANGI 5.34%) plunged 36.4% in August, according to data provided by S&P Global Market Intelligence. The company reported financial results on Aug. 8 for the second quarter of 2023 during which revenue dropped 27% year over year to $375 million.
In shocking fashion, new Angi CEO Joey Levin said that this nearly $141 million drop in quarterly revenue was "good riddance." Based on the stock performance, however, the market appears to think differently.
So what
Some of the decline in Angi's revenue needs to be taken with a grain of salt. The company changed how it's handling the reporting of its services segment. Previously, it reported this segment's gross revenue. But now it reports its net of payouts to service providers, which makes sense. This change alone accounts for more than a $70 million swing.
That said, it doesn't account for the entirety of the revenue decline for Angi. The platform allows homeowners to find and book professionals to perform home projects. And volume for these services dropped in Q2, with service requests dropping 12% year over year.
Circling back to CEO Levin, he's actually glad to see the company lose some of its revenue -- revenue he says is low-margin. The company intentionally exited certain things earlier this year where there was no profitability. And to be fair, Angi's profit margins have improved somewhat over the last year.
ANGI Operating Margin (TTM) data by YCharts.
Angi's management maintains that it will earn at least $100 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2023. And having earned almost $49 million in the first half of the year, it's well on pace.
Now what
In Q2, transacting service professionals fell 22% year over year to just 206,000 for Angi. This isn't good because consumers come to Angi looking for help. But in theory, there may not be a big enough supply of pros to get projects done, making the platform less relevant.
Conglomerate IAC holds 98% of the voting power for Angi, and Levin is CEO of both companies. In IAC's letter to shareholders, management provided more color on Angi's business. According to management, the pros it's recently added to its platform are better than pros it had in the past. In short, it believes they're more loyal to the platform, which will allow Angi to spend less on maintaining and growing the community.
Given the decline in Angi's business, I believe shareholders should watch retention levels for its service professionals. This is one of the few places where management says its turnaround is taking hold. But if the number of service professionals on the platform keeps slipping, there might be little left to hope for.
