ANGI - Angi's Transformation: From Losses To Adjusted Profits

2023-06-06 00:56:39 ET

Summary

• ANGI has transformed its business from loss to positive Adjusted EBITDA after trimming unproductive service items.
• ANGI has been working on AI services that may improve customer experiences tremendously.
• Although some initial metrics indicate a potential for growth, it appears that 2023 will be a year of revenue decline.

Business updates

In the first quarter of 2023 , Angi Inc. ( ANGI ) demonstrated a good financial performance. While the company experienced a 10% decline in revenue, reaching $392 million compared to the previous year, the Ads and Leads segment remained flat YOY. Notably, the Roofing segment saw growth of 5%. However, the Service segment had the most significant impact, with a substantial decrease of 58%. Despite these challenges, ANGI's overall profitability showed improvement, as the total adjusted EBITDA turned positive at $30.5 million, compared to a negative $3.2 million in the previous year. This improvement was driven by a reduction of $16.4 million in adjusted EBITDA by the Service segment, while the Ads and Leads segment contributed to a 16% increase in adjusted EBITDA. With the management team targeting adjusted EBITDA between $60 and $100 million for 2023, ANGI's Q1 result of $30.5 million marks a promising start toward achieving their financial goals.

ANGI's focus on enhancing customer experiences has had an impact on its 2023 revenues

As highlighted in the CEO's shareholder letter , ANGI accomplished two important objectives in the last quarter. Firstly, they focused on rationalizing their services, streamlining their offerings to enhance efficiency and customer experience. Secondly, the company worked diligently to optimize their operations, reducing costs and generating increased cash flow. ANGI's ability to generate profits is now unquestionable. In an effort to improve customer experience, ANGI has reduced the frequency of promotional emails and phone calls, which may result in lower revenue in the short term. The company remains committed to enhancing profitability and building stronger relationships with their customers throughout 2023. They will drive higher customer retention and attract professionals to increase their spending with the company. However, the benefits of these initiatives will not be seen in customer experiences and revenue until 2024.

New AI Chatbot

The advancements in large language models and AI have the potential to benefit ANGI as the CEO Joey said :

What the Chatbots are doing right now is they are creating this natural conversational UI where users are getting comfortable with those things, which is like a gift from heaven for us to be able to get people to use that UI more comfortably and to have that be smarter and more interactive.

I think ANGI's efforts to build an AI platform and enhance its conversational interface with customers could be a significant development for the company. By leveraging these technologies, ANGI aims to gather valuable data on homeowners' intentions and needs, enabling them to better match customers with service professionals.

Early Signs of the future growth

The trajectory of platform performance and consumer behaviors in a consumer-facing platform like ANGI often takes time to evolve. After implementing service cuts, it is expected that ANGI's revenues were negatively impacted by a decrease in the number of transactions. The recovery and future growth of ANGI currently remain uncertain.

However, the management has provided some positive early signs, such as a reversal in SEM conversions, which had been in decline for the past two years. Customer retention has also shown meaningful improvement, with professionals who have been with ANGI for various durations experiencing an upward trajectory since March. Overcoming the challenges of homeowner repeat rate, which can be stubborn, is another noteworthy achievement for ANGI.

These incremental improvements serve as evidence of the management's capabilities in guiding the business. With IAC's extensive experience in working with two-sided marketplaces, the potential for ANGI to become a significant player increases if transactions and the number of professionals on the platform steadily rise.

Bottom Line

During the quarter, ANGI demonstrated significant hidden strength. Over the past 10 years, ANGI has experienced tremendous business growth (chart below), addressing some pain points in the large home service category. Following the merger of Angie's List, HomeAdvisor, and Handy, ANGI aims to form a stronger brand with more comprehensive offerings. However, achieving integrated customer experiences in this industry is a complex task. In Q1 2023 , ANGI still allocated 78% of its sales to SG&A, suggesting that they are not yet a well-known and respected service. It is important to recognize that ANGI is still in the early stages of reaching its full potential.

Despite an EV/Sales ratio of 0.99, which indicates a discounted view in the market, ANGI has already demonstrated its ability to generate over 100M+ in Adjusted EBITDA. This suggests that the downside potential for valuation is limited, especially when compared with similar marketplace businesses (chart below). Furthermore, with ANGI's ongoing focus on enhancing its platform and customer experiences, there is potential for positive surprises in the future.

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