ANGI - Angi Has A More Defined And Simplified Business Structure

Summary

• ANGI still offers revenue growth under challenging macro environment.
• CEO Joseph Levin has made clear direction on how to improve its different business segments during the 2022 Q4 conference call.
• I see a clearer outlook regarding the future profitability of the business.
• For an extended period, the stock has been in a depressed state. If the management team can effectively execute their plans for future growth, there exist numerous prospects for investors to receive profitable returns.

Angi Inc. (ANGI) has been a prominent name in the online home improvement and handyman service industry since its IPO in 2011. However, the company's stock has struggled to provide favorable returns. Despite this, recent changes such as the merger with IAC and the consolidation of various brands, including Angi's List, HomeAdvisor, and Handy, have allowed the company to gain valuable market insights. As a result, the company has made significant changes to its business model and product offerings. I believe that ANGI has recently shown positive signs with a more simplified approach to its business which could be a game-changer in the future.

Business update

Last quarter, ANGI saw a 6% increase in revenue year-over-year, driven by 7% growth from Ads and Leads, marking the third consecutive quarter of growth, and 10% growth from Services. Revenue from Roofing also saw a 5% increase. Gross profit grew at a faster rate than revenue, increasing by 8% to $339 million. However, the company's operating loss increased to $60 million compared to a loss of $29 million in the previous quarter. Adjusted EBITDA increased to $16 million compared to a loss of $3 million in the previous quarter. The company had 220,000 transacting service professionals, and monetized transactions were $6.1 million in Q4 2022 and $29 million for the trailing twelve months. For the full year 2023, Angi Inc. expects to see an operating loss of $45-$110 million and $60-$100 million of Adjusted EBITDA.

We see that Angi's business continues to grow last quarter even under extreme challenges in the housing market, inflation, and interest rates. As a result, Angi keeps its trajectory delivering steady growth after its restructuring with IAC, Angi's List, HomeAdvisor, etc in 2017 . ANGI became a company with $1.86B (almost $2B) in revenues which is 4x Bigger than any other Digital Home Services Company.

ANGI has been around for 20 years

Given the fragmented market and ANGI's relatively small size, it is evident that ANGI has the potential to achieve growth. I find it a little surprising that this business has been running in the home services industry for more than 20 years . It started with Angi's List, a directory that provided consumers with all the necessary information about service professionals, including ratings and reviews. However, as Google (GOOG) (GOOGL) began to do the same, ANGI introduced Home Advisor, which matched homeowners with professionals based on their exact requirements. Later, Handy was acquired, which allowed homeowners to book and pay for jobs online. Today, all these brands have merged into one, ANGI, so I think they definitely understand the business and the various needs of both homeowners and professionals.

A strong focus on fundamentals

In a recent statement, the CEO of ANGI Joseph Levin has admitted the confusion with some of their products and services. Certain investments made in the past were not carefully planned, as Joseph has stated :

Though the market adjustment is unpleasant, we prefer operating in an environment where risk is recognized rather than one where all trees are assumed to grow to the sky.

In addition, the margin for some services and products is not satisfactory. The service request product requires homeowners to answer detailed questions which can be beneficial for professionals but has also impacted the interaction on the ANGI platform. As a matter of fact, ANGI's rebranding has led to a decline in engagement as service requests have been consistently decreasing year-over-year. Ads and leads businesses also lost a lot of free traffic and free audience.

To address these issues, the CEO is looking to reinvigorate the UI to once again thrive and catalyze more interest for customers who prefer to skim around. Additionally, ANGI hopes to reach more customers on search engines by showing directory content earlier in the user journey.

More well-defined business structure

Ads and leads have been a reliable and lucrative aspect of business throughout history. While it faced some challenges with rebranding in the past, it has made a significant recovery in 2022 as indicated by the chart below. As a result, there is optimism for continued growth. However, there has been a noticeable lack of emphasis on this area of the business, leading some to speculate that ANGI plans to shift Ads and Leads toward a pre-priced service model. It looks like the management plans to refocus on this segment as its main strategic growth lever.

The service business has undergone real change with a focus on simplifying offerings. This includes moving away from complex services that have proven difficult to generate profits from and touch only a limited number of consumers. Instead, the emphasis is on lowering the average order value of services which have proven to be profitable and reaching millions of customers. Simpler services are also easier to be priced online, and the repeat rate is expected to increase, with previous examples seeing a 2x repeat rate. As a result of this change, margins, and profitability have significantly improved in comparison to the first half of the yea r (below).

The ANGI management seems to be aware of the complexity and diverse needs of their customers. They have realized that in order to succeed, they need to have a profitable business model for each segment and move forward in multiple directions. This approach will enable them to cater better services to the different demands and expectations of their clients.

Improved profitability and stability

I see these moves as big positives. Eliminating complex orders can have a positive impact on a business in various ways. Such orders can be tough to specify in terms of price and may take a long time to complete, leading to cancellations and revenue loss. By simplifying services, businesses can improve their margins, reduce credit losses, and minimize deferred revenues that come with uncertainties. ANGI, for example, can benefit from eliminating complex orders as it can lead to higher repeat use and fewer cancellations, contributing to a more stable and profitable business model. I especially like what the CEO said here :

Services will remain an essential element of our future product offering, but we are now focused on the areas where we can delight more consumers with more certainty

Because of simplified business offerings, ANGI has cut over $100 million of combined annual operating expenses and capital expenditures. The management team has set a target of guiding the company toward generating anywhere between $60 to $100 million of Adjusted EBITDA in 2023.

Bottom line

All in all, ANGI is a small-cap company with a $1.29B market cap for a TAM of $40B-$80B ads and marketing spending in the home service industry. There should be lots of untapped spaces for growth. ANGI is still underperforming its pre-rebrand period. According to data, there is a potential 75% increase in SEO revenue, 90% increase in SEM profit, and a 32% increase in brand awareness that could help ANGI reach previously achieved levels. With 60-100M EBITDA guidance in 2023, the current enterprise value of $1.46B is not expensive at all in my view. This is especially true when one considers ANGI's strong leadership position in the market, which presents a lot of promising future opportunities.

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