Angi Says It’s Turning the Corner

Angi Says It's Turning the Corner

After a rough few quarters, the company expects revenue and profits to accelerate over the rest of the year.

Coming into Angi ‘s ( ANGI 8.09%) first-quarter earnings report, investors were hungry for some good news. The stock had tumbled 70% over the last year as the company experienced a setback in traffic from its rebranding to Angi last March (from HomeAdvisor and Angie’s List). And a supply imbalance hurt demand from pros using Angi to book jobs.

In fact, Angi’s first quarter didn’t blow away expectations by any means, but it was enough to give the stock a jolt as shares jumped 22% on Tuesday. Revenue in the quarter rose 13% to $436.2 million, largely due to the growth of the pre-priced Angi Services segment where sales jumped 107% to $113 million, in part from its acquisition of Total Home Roofing last July.

On the bottom line, the company posted an adjusted loss in earnings before interest, taxes, depreciation and amortization ( EBITDA) of $3.2 million, compared to a $23.2 million a year ago. On the basis of generally accepted accounting principles (GAAP) , the company lost $33.4 million, or $0.07 per share, compared to $1.9 million in net income in the quarter a year ago. Macroeconomic headwinds and investments in the services business weighed on profitability in the quarter.

Results like that don’t generally spark a gain of more than 20%, but it wasn’t the first-quarter results that had investors bidding the stock higher. It was the company’s optimistic talk about the rest of the year.

Angi didn’t give specific guidance, but said on the earnings call that it would grow revenue by 15% to 20% this year, marking an acceleration from the first quarter. Management also called for profits to improve over the duration of the year and for organic growth in services revenue to also increase in each quarter.

The company said its investments in the services segment, including things like tech infrastructure and onboarding service pros and customers, peaked in the first quarter, positioning it to ramp up profitability over the rest of the year. The Angi mobile app. Image source: Angi. The flywheel takes shape

Angi stock has struggled historically, both when Angie’s List was a stand-alone company and since the 2017 merger between Angi and HomeAdvisor, engineered by IAC ( IAC 6.22%), a media company which now owns roughly 85% of Angi.

Despite its struggles to generate consistent profitability, the business model has potential, and the value proposition of the company is clear. It connects homeowners with service professionals, taking a fee for the services.

Angi is the largest such marketplace in the industry, and like other two-sided marketplaces , it should be able to generate solid margins with an asset-light business that takes advantage of its unique position connecting buyers and sellers. Angi Services is an important step in boosting that flywheel as it eliminates much of the friction in booking jobs from both ends. The fragmentation challenge

Home services, which includes everything from plumbing to house cleaning to landscaping, is a massive, highly fragmented industry. Those industries often look ripe for disruption as tech companies are competing with independent operators and small businesses in industries that have hardly changed over the last generation.

But disrupting a fragmented industry isn’t always as easy as it looks, and Zillow Group ‘s flop in house-flipping and Carvana’s recent crash in used car sales are reminders of that challenge. Home services comes with its own set of challenges. It’s highly localized. Homeowners often prefer to get references by word of mouth or personal relationships. And jobs, especially higher-priced ones, are usually unique.

Angi isn’t trying to disrupt home-services providers, though. It’s providing an easier to way to connect homeowners with service providers, and the business should return to a more normal growth rate as consumer demand softens and service providers return to the marketplace.

With the company forecasting accelerating profits and growth over the rest of the year and its investments in the services business, the pieces seems to be there for the flywheel to take off. Still, the macroeconomic situation remains uncertain, and management will have to execute on its forecast over the rest of the year for the stock to keep moving higher. Should you invest $1,000 in ANGI Homeservices Inc. right now?

Before you consider ANGI Homeservices Inc., you’ll want to hear this.

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