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As a real estate investor, you have several options for expanding and diversifying your portfolio. You could load up on a mix of real estate investment trusts (REITs), buy an income property, or invest in stocks that are real estate-oriented or adjacent. An example of the latter is Porch (NASDAQ: PRCH), which first made its stock market debut in late December. But is Porch a solid bet?
Porch's business model
Porch's business model is simple yet complicated. At its core, it's a software business that connects homeowners and home service providers. Someone who needs a carpenter, for example, can use Porch's platform to find a local professional.
But Porch's software goes beyond that. Service providers can also use Porch as a customer relationship management platform. Plus, the company collects homeowner data it can use to try to sell additional services to customers.
Porch's finances are a mixed bag
Porch was able to raise $322 million in the course of its IPO through a merger with PropTech Acquisition Corp., a publicly traded special purpose acquisition corporation (SPAC), and a private investment from Wellington Management Co. Meanwhile, Porch's market capitalization topped $1 billion in late December based on an initial share price of $15. As of this writing, its shares are worth about $18 apiece.
But one thing investors should know is that in the course of its eight years in business, Porch has yet to actually turn a profit. In 2019, it posted a net loss of $103 million on revenue of $77.6 million. And recently, the company disclosed its preliminary financial results for 2020 and said it anticipates a net loss of $53 million to $55 million -- about $20 million deeper into the hole than it previously indicated in public filings.
Porch attributed that larger-than-anticipated loss to higher spending on marketing and research and development. It also said investors had encouraged the company to go big on spending in order to grow its customer base. Furthermore, Porch's business did take a temporary hit early on in the pandemic, when homebuying slowed down and economic uncertainty caused a lot of people to pull back on home improvements.
That said, when homebuying rebounded during the second half of the year, so too did Porch. And given the number of people who will likely seek to buy homes in the near term, what with mortgage rates sitting near historic lows, this could be the year Porch's business really takes off. That, combined with the company's recent cash infusion, could help Porch sink even more resources into its platform and expand its marketing efforts to grow its customer base.
Is Porch a buy?
Despite a history of losing money, Porch has potential. Right now, the home improvement market is booming, and in a post-pandemic world where the idea of inviting a contactor into one's house isn't nearly as daunting, Porch may be in a solid position to leverage its technology in a very profitable way.
But will Porch retain its edge over time? That's the big question mark. While it may be a viable shorter-term investment, it's hard to say where Porch will be in a few years from now. As such, Porch may be a solid addition to real estate investors' portfolios, but those who buy its stock should keep tabs on how well the company manages its money -- both in the next year and beyond.
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