IAC - Angi: 10 Reasons To Be Hopeful

Summary

• Angi shares have been decimated, falling 80% year-to-date as key operational metrics (number of service providers, service request completions) have come in below expectations.
• While results have been disappointing, the company remains EBITDA profitable. Meanwhile with new management and improved labor availability, there are reasons to be optimistic.
• With a strong balance sheet, the parental support of IAC, and a valuation of less than 1x gross profit, downside appears limited.
• If management can turn things around, upside is significant. Should ANGI merely revert to historical profitability levels, the stock could triple.

Angi ( ANGI ) shares have fallen 80% year-to-date and are bouncing around all-time lows as EBITDA has fallen 60% from 2018 levels. Results have suffered from bumpy transition to a fixed price model and a reduction in both service professionals using the platform as well as transactions completed on the platform.

Some of ANGI's difficulty stems as many contractors and repair folks have been at capacity during the housing boom. A cooling housing market and narrowing of focus (discussed below) could help boost revenue and drive an improvement in profitability.

Meanwhile, ANGI occupies a leading position in a structurally attractive and growing market. Should investors catch a whiff of a turnaround, shares could trade significantly higher.

Background

ANGI was formed in 2017 through the merger of IAC's ( IAC ) HomeAdvisor with Angi's List. Following the merger, IAC owned 85% of the ANGI. The combination created the leading online home services and repair directory. While the company produced strong results from 2018-2020, the business has suffered from a confluence of factors, including:

• difficult transition from lead generation business model (selling consumer leads to service providers) to a fixed price marketplace model. In building a fixed price marketplace ANGI has had to price a wide range of jobs (hundreds in fact). As discussed below, the company offered too wide a range of job types (some of which simply don't lend themselves to a firm online quote).
• At the same time ANGI has been broadening its offering, the availability of service providers has been near an all-time low as the housing boom dramatically limiting the availability of home repair professionals.
• This has created a situation where ANGI has been selling consumers it has ultimately been unable to deliver. This has caused deterioration in its reputation/brand.

Ten Reasons for Optimism

Given the difficult situation I just described, why am I optimistic that ANGI can rebound?

• Leading marketplace /advertising platform for home services - scale affords competitive advantages in technology investment, relevance to service providers, and marketing to consumers.
• New management - IAC CEO Joey Levin took over as CEO of ANGI earlier this year. While turning ANGI around is no easy task, IAC/Levin have a history of both building and turning around businesses.
• Home services is a giant market opportunity with a total addressable market of $500 billion. If ANGI can get its offering/service right, there is an absolutely enormous opportunity ahead.

• As shown below the US housing stock has aged considerably over the past 18 years (from average age of 32 years to 39 years). An older housing stock requires more maintenance and repair work and ensures continued growth in ANGI's end market.

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