12/10/2019
@icebergdevalor
ANGI Homeservices
-When those dark
clouds all disappear
Investment summary
• HomeAdvisor is the largest home services marketplace in the US
• A still-nascent online transition in the industry should be a multi-year tailwind for ANGI
• Recent missteps in performance advertising have increased fears of Google
• However, compared to usual Google prays, ANGI is a much more defendable business
• Additionally, the company is transitioning to an on-demand platform, changing its business profile
• ANGI is the leader of its industry and it is led by IAC, one of the most capable operators
• Despite its many qualities, ANGI is still a forgotten controlled company; always in the shadow of its grown-up brother MTCH.
12/10/2019 ANGI Homervices Pitch | @icebergdevalor 2
Execution in fixed price services, loyalty improvements and the short pressure relief
from the MTCH spin should set ANGI as a powerful platform with years of growth ahead
Description
ANGI consists of a series of businesses
• HomeAdvisor• Formerly ServiceMagic, it is the biggest home services marketplace in the US
• People search for a given service and (pre-fixed price) they receive the call of up to 4 contractors• HA collects a fee for each lead it provides the contractors + other subscription payments
• The equivalent take rate of the lead is around 4% of the GMV (services can be big and complex)
• Angie’s List• A marketing company for contractors, it was the original public company
• After years of growth (but not profitability), Angie’s loyalty rates fell dramatically• IAC offered a purchase price of $500M (<2x revenue) and reverse-merged HomeAdvisor with ANGI
• Angie’s List monetization has been de-emphasized while increasing its references to HA.
• Handy • Fixed-price focused home services startup recently acquired by ANGI
• International• A series of international investments in the home services sector
• Others• ANGI has acquired/disposed various related business: Fixd (warranty), mHelpDesk (SaaS), Felix (leads), etc.
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On-Demand
Economy
Two-sided network
Millennial Home
Ownership
• ANGI sits in the middle of a market with attractive characteristics
• On-demand economy trend
• The wave of millennial home ownership
• Flywheel-type, two-sided network
• Its relative size is much bigger than competitors
• Despite the many startups, the space isn’t still flooded with VC/PE/Megacap money.
• The market is • Hyperlocal and fragmented
• 2/3 of requests are not discretional
• +80% of the transactions are offline
• Pro’s still skeptical about online
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Attractive market
Competent execution could translate into a
multiyear +15% GMV CAGR on the back of
massive offline-to-online shift
Home services sector • Extremely fragmented, small and often offline
• Incumbents: Homeserve, Frontdoor, FSV
• New wave (reminiscent of pre-Tinder in dating)
• No clear winner
• Lots of startups which can attract critical mass and be profitable
• Margins, even with small revenues can be very good (+20% FCF)
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2014 2015 2016 2017 2018 2019
MyHammer Holdings
Revenue FCF %
Marketplace vs SaaS/Organic• Many service contractors don’t like online lead generation companies. Hence, the “HomeAdvisor is a fraud”
comments.
• These kind of dynamics are common with marketplaces: for example, hotels hate Booking and, still, this has not prevented BKNG from being a tremendous compounding story:
• Contractors would prefer to create their own brand and organic traffic (Google/Facebook campaigns, ServiceTitan type of software).
• On the other hand, consumers would prefer having a transparent platform that integrated all the service providers where they could get the best value.
• This SaaS/Organic vs Marketplace tension will always exist but should not pose an existential risk to ANGI.
• Compared to Booking, ANGI has various advantages at this battle:
• The service request process is much more complex and involves friction. This prevents Google from offering a comparable search process.
• Contractors are smaller/more fragmented and often more “traditional” (meaning they often don’t have good digital skills).
12/10/2019 ANGI Homervices Pitch | @icebergdevalor 6
The fragmented and complex nature of the industry has made home services more
difficult for Google to crack, even in the current state (lead-gen based) of the business.
Fixed Price + App• However, the lead-gen model has its limits
• Contractors don’t like it
• It involves a lot of hassle on the request side
• 40% of requests don’t get any answer
• The take rate is only 4% of GMV
• Google is a real threat
• ANGI is currently transitioning to a fixed price model• An UBER-like system where the price of the service is shown upfront
• ANGI does the payment processing
• Although this transition has been in the works from 2017. It has accelerated lately:• 10/11/2018 - ANGI purchases Handy – A start-up that offered fixed-price home services for house
cleaning and others
• 8/7/2019 - Oisin Hanrahan (Handy founder) is named Chief Product Officer at ANGI
• 2019Q3 – Fixed price services number go from 33/500 beginning 2019 to 133/500.
• These services are still around 5% of total revenue.
• Currently FP services are money losing, dragging the P&L for some quarters.
• This transition makes ANGI to have more organic traffic (app)
• Equally, solved the main painpoint from the contractor side “they only offer leads”.
• The app is being pushed vs web – Loyalty improvement
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Take rate and GMV• In 2019, ANGI will do around $46B requested GMV, $28B serviced GMV at around 5% overall take rate.
• There is $18B in requested GMV that isn’t serviced. This slack is expected to be reduced due to FP services.
• Generally, for marketplaces, take rate depends on the standardization of the job:
• Standardized (low price) jobs – High take rate: i.e. Food delivery, Ride-sharing
• Complex (high price) jobs – Low take rate: i.e. Upwork, ANGI
• For ANGI, the more jobs become fixed price
• Take rate improves
• Customer satisfaction improves – Less friction (“Uber-like”)
• Contractor retention improves – They get real jobs instead of leads (main pain point)
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Take rate GMV
• Current take rate for fixed-price (mid-teens) could be pushed to above-twenties like peer companies have achieved, without sacrificing GMV growth (i.e. LYFT 27%, FVRR 25%)
As fixed-price as share of rGMV increases, sGMV and take
rate, increase. ANGI becomes top-of-the-funnel and
demand/supply LTV/CACs improve.
The ANGI Iceberg
• For a company at $4B, ANGI’s rGMV is around $46B
• Companies that have such a big influnce are often awarded big revenue multiples; this is not the case for ANGI.
• Although a different business, Frontdoor will do around 1.4B in revenue
• However, this figure doesn’t compare to ANGI’s revenue but, actually, to ANGI’s Serviced GMV
• This shows how two companies with similar market cap and revenues can widely differ in the amount of business they influence
• It is a matter of execution to bridge the gap between total influence and actual business turnover.
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Requested GMV
$46B
Serviced GMV
$27.5B
Revenue
$1.35B
IAC – Digital Buy and Build• ANGI is managed by one of the savvyest online business
operators
• As with other IAC franchises, ANGI is a product of years of IAC buying, building and spinning businesses
• Including ANGI, IAC has been able to successfully balance creating in-house companies while buying new assets.
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ANGI Special Situation• HomeAdvisor was being public was premature for the company and only happened due to the ANGI
reverse merger
• Even today, the company is not a full grown-up
• They don’t have their own IR or even a quarterly slide deck
• They don’t report many typical marketplace metrics: GMV, take rate, LTV/CAC
• Selling and marketing is still a huge part of the P&L
• It’s a controlled company – IAC owns 87% of the float.
• A significant portion of the free float is short due to arbitrage reasons
• For these reasons ANGI is often forgotten behind it’s successful brother MTCH
• It is usual for MTCH bulls to be long IAC and short ANGI in order to gain exposure the IAC stub
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The MTCH full spin should alleviate many of the non-fundamental pressure against the ANGI stock price
Selling and Marketing• Currently around 55% of ANGI revenue is used for marketing expenses
• Just the TV spent for HA is much greater than other bigger brands
• This shows poor return on current advertising dollars (lack of loyalty)
• This expense is equally spent in demand weighted (36%/19%)
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• A shift to fixed-price + app should gradually allow to leverage ad spend
• A SCM-focused company like Booking spends a third of its revenue in marketing (BKNG organic traffic is undisclosed, but should be below 40%)
• ANGI’s organic traffic is around 60% (+20% SEO, +20SCM)
• Demographic tailwind: younger users tend to prefer app vs web
• HA is being used 1.8 times/year per user from a potential 8 times/year: r repeat usage increase improves loyalty.
• Nextdoor/Reology-type partnerships help lower CAC
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Selling and Marketing is ANGI’s biggest P&L burden. None of the
comparable companies, even small home service webs, come close to this.
Minimal loyalty improvements should yield better ad-dollar efficiency.
ANGI Valuation• ANGI’s valuation depends on a variety of factors
• Requested/Serviced GMV, Fixed-Price share, FP take rate and marketing efficiency
• Conservative metrics on those parameters yield an attractive return for a company priced at $4B (@7.9 a share)
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2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E
Total Request GMV 41.7 45.8 51.3 57.2 63.5 70.5 77.9
TR GMV Growth % 10.0% 12.0% 11.5% 11.0% 11.0% 10.5%
Total Serviced GMV 25.0 27.5 31.1 34.9 39.1 43.7 48.7
60% 60.0% 60.5% 61.0% 61.5% 62.0% 62.5%
Lead Model Take Rate 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3%
Lead Model GMV share % 98.0% 94.0% 91.0% 88.0% 85.0% 82.0% 79.0%
Fixed Price - Take Rate 13.0% 15.0% 15.0% 15.5% 15.7% 15.9% 16.2%
Fixed Price GMV share % 2.0% 6.0% 9.0% 12.0% 15.0% 18.0% 21.0%
Overall - Take Rate 4.5% 4.9% 5.3% 5.6% 6.0% 6.4% 6.8%
Net Revenue Total 283.5 361.0 499.0 736.4 1,132.0 1,355.0 1,634.5 1,970.6 2,348.3 2,793.0 3,311.4
Revenue Growth % 27.3% 38.2% 47.6% 53.7% 19.7% 20.6% 20.6% 19.2% 18.9% 18.6%
GM 261.2 338.1 473.2 702.3 1,076.3 1,307.6 1,578.9 1,905.5 2,270.8 2,700.9 3,202.1
GM % 92.1% 93.7% 94.8% 95.4% 95.1% 96.5% 96.6% 96.7% 96.7% 96.7% 96.7%
Selling & Markerting - Supply 70.8 85.9 109.9 181.7 206.8 487.8 302.4 364.6 434.4 502.7 596.0
Selling & Markering - Supply % 25.0% 23.8% 22.0% 24.7% 18.3% 19.0% 18.5% 18.5% 18.5% 18.0% 18.0%
Selling & Markerting - Demand 90.0 140.0 196.8 282.3 334.7 400.0 547.6 620.7 692.7 782.1 861.0
Selling & Markering - Demand % 31.7% 38.8% 39.4% 38.3% 29.6% 36.0% 33.5% 31.5% 29.5% 28.0% 26.0%
Selling & Markering - Total 56.7% 62.6% 61.5% 63.0% 47.8% 55.0% 52.0% 50.0% 48.0% 46.0% 44.0%
General & Administrative 71.8 86.7 110.0 300.0 323.5 338.8 375.9 433.5 528.4 586.5 695.4
General & Administrative % 25.3% 24.0% 22.0% 40.7% 28.6% 25.0% 23.0% 22.0% 22.5% 21.0% 21.0%
Development & Other 27.0 26.5 32.0 47.9 61.1 63.7 76.8 90.6 105.7 125.7 145.7
Development & Other % 9.5% 7.3% 6.4% 6.5% 5.4% 4.7% 4.7% 4.6% 4.5% 4.5% 4.4%
D&A 16.0 10.5 11.5 37.7 86.5 93.5 114.4 137.9 164.4 195.5 231.8
D&A % 5.6% 2.9% 2.3% 5.1% 7.6% 6.9% 7.0% 7.0% 7.0% 7.0% 7.0%
EBITDA 1.6 -1.0 24.5 -109.6 150.2 17.3 276.2 396.1 509.6 703.8 904.0
EBITDA growth -162.5% -2550.0% -547.3% -237.0% -88.5% 1493.0% 43.4% 28.7% 38.1% 28.4%
EBITDA margin 0.6% -0.3% 4.9% -14.9% 13.3% 1.3% 16.9% 20.1% 21.7% 25.2% 27.3%
Considerations
Risks• Google is a (the) real competitor. Going against Google doesn’t end well usually.
• ANGI markets are hyperlocal. A well-funded competitor could win over ANGI one market at a time.
• Fixed Price is only 5% of revenue and money-losing. ANGI’s success partly depends on it.
• Contractors still don’t like ANGI
• There is a limit to the GMV you can make fixed price due to complexity. This caps the take rate.
• Part of the 40% unmet demand is a natural slack of the marketplace
Upside• Economic cycle protection: 2/3 of ANGI’s demand are non-discretionary, the other part is R&R.
Additionally, if the current tight job market loosens, it attracts more contractors to the platform.
• If the fixed-price transformation is achieved, ANGI margins could be above 35% EBITDA (more food-delivery-like margins)
• A possible VC winter would be a tailwind for ANGI (SCM dollars + contractor retention).
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