This Tech Company Could Be The Next Uber
Its stock looks too cheap.
Its stock looks too cheap.
Technology has managed to replace business trips, visits to the gym, and in-person shopping. But for anyone who has dealt with a leaky faucet or overgrown tree, the Covid era has been another reminder: Good help is hard to find.
Angi (ticker: ANGI) has spent the past 25 years trying to solve the problem. For most of that time, the company used internet ads to match homeowners with prescreened plumbers, carpenters, and landscapers. It was a decent business, but the model stalled during the pandemic. Overworked contractors, faced with overwhelming demand, have had little need to pay for advertising.
Revenue for Angi’s ads and leads business, which is about three-quarters of company revenue, was flat in the latest quarter, even as demand for contractors surged. The company’s stock is down 33% over the past 12 months. But Angi is working on a fix and—in a world of pricey internet stocks—the stock now looks like a bargain.
Angi, which stems from the 2017 merger of Angie’s List and HomeAdvisor, has begun to take a more active role in the relationship between homeowners and contractors. While the company historically left the scene after making an introduction, its new Angi Services segment serves as a soup-to-nuts marketplace. All communication, scheduling, and billing between homeowner and contractor take place via Angi’s platform. Angi gets an undisclosed percentage of each job.
There are more than 500 available services, including plumbing, landscaping, painting, roofing, remodelling, housecleaning, and pest control. Contractors get the benefit of guaranteed jobs at fixed rates, with Angi handling bill collections. Meanwhile, homeowners can easily book appointments via the web or mobile app.
If it sounds like calling a car via Uber or booking a vacation house on Airbnb, that’s part of the plan.
“It’s hard to own a home,” says Angi CEO Oisin Hanrahan. “We want to serve every need a homeowner has and take some of that stress away, while changing the economics” for home-services providers.
While still small, the Angi Services segment is already showing impressive growth, with revenue up 160% year over year in the third quarter, to $117 million.
There’s significant upside from there. Americans spend nearly $600 billion annually on home services. Less than 20% of those jobs begin online, a figure that should quickly increase as a new digitally native generation enters the housing market.
Wall Street analysts expect Angi to report 2021 revenue of $1.68 billion, up a modest 15% from the prior year. That should accelerate as Angi Services becomes more dominant and the legacy business returns to growth.
J.P. Morgan analyst Cory Carpenter expects Angi Services to make up more than 40% of the company’s total revenue by 2025. He sees it growing more than 50% in 2022, versus single-digit growth in the ads and leads business.
“For an investor, it checks a lot of boxes: a large total addressable market, low online penetration, and leading market share,” says Carpenter, who rates Angi stock at the equivalent of Buy.
So far, investors aren’t paying attention. Angi stock trades for just 1.8 times the $2.29 billion in revenue that Wall Street expects the company to generate in 2023. That compares with Angi’s five-year average of more than five times year-ahead revenue. Leading online marketplaces like Airbnb (ABNB), Etsy (ETSY), and Uber Technologies (UBER) fetch an average multiple of 6.1.
Some of Angi’s discount is justified, given its slower projected growth than peers. The company is targeting 15% to 20% annual growth in the coming years.
Large profits aren’t imminent, either. The ongoing rebrand to Angi requires heavy investment spending, as does building out Angi Services in more categories and geographies. Angi is projected to lose $66 million in 2023, before turning profitable on a net income basis in 2024. Hanrahan says he’s comfortable with operating the business at break-even for several years, prioritizing long-term growth over near-term profits. The good news is that Angi has little debt and generates positive cash flow, meaning it should be able to self-finance that growth.
IAC/InterActiveCorp (IAC), the Barry Diller–controlled technology start-up holding company, owns some 85% of Angi shares.
“We see a really great opportunity to build this business into what could be an 800-pound gorilla in the home-services space,” says Lori Keith, portfolio manager of the $8.3 billion Parnassus Mid Cap fund (PARMX), which is Angi’s largest non-IAC shareholder. “You have to take a long-term view as they invest…to achieve greater scale, and then see the [profit] margin inflection down the road.”
Angi doesn’t need an Airbnb-like multiple to deliver significant returns.
Carpenter uses an undemanding sales multiple of three times to come up with a price target of $13 on Angi shares, 58% upside from a recent $8.21.
Like countless other areas of the 21st-century economy, booking home services will increasingly move online. With Angi, investors will have to be patient. But they now have an opportunity to get in on the ground floor.
Reprinted by permission of Barron’s. Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: Jan 18, 2022.
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
Crypto’s lack of connections with traditional finance means its problems haven’t spilled over to the economy
This year’s crypto collapse has all the hallmarks of a classic banking crisis: runs, fire sales, contagion.
What it doesn’t have are banks.
Check out the bankruptcy filings of crypto platforms Voyager Digital Holdings Inc., Celsius Network LLC and FTX Trading Ltd. and hedge fund Three Arrows Capital, and you won’t find any banks listed among their largest creditors.
While bankruptcy filings aren’t entirely clear, they describe many of the largest creditors as customers or other crypto-related companies. Crypto companies, in other words, operate in a closed loop, deeply interconnected within that loop but with few apparent connections of significance to traditional finance. This explains how an asset class once worth roughly $3 trillion could lose 72% of its value, and prominent intermediaries could go bust, with no discernible spillovers to the financial system.
“Crypto space…is largely circular,” Yale University economist Gary Gorton and University of Michigan law professor Jeffery Zhang write in a forthcoming paper. “Once crypto banks obtain deposits from investors, these firms borrow, lend, and trade with themselves. They do not interact with firms connected to the real economy.”
A few years from now, things might have been different, given the intensifying pressure on regulators and bankers to embrace crypto. The crypto meltdown may have prevented that—and a much wider crisis.
Crypto has long been marketed as an unregulated, anonymous, frictionless, more accessible alternative to traditional banks and currencies. Yet its mushrooming ecosystem looks a lot like the banking system, accepting deposits and making loans. Messrs. Gorton and Zhang write, “Crypto lending platforms recreated banking all over again… if an entity engages in borrowing and lending, it is economically equivalent to a bank even if it’s not labeled as one.”
And just like the banking system, crypto is leveraged and interconnected, and thus vulnerable to debilitating runs and contagion. This year’s crisis began in May when TerraUSD, a purported stablecoin—i.e., a cryptocurrency that aimed to sustain a constant value against the dollar—collapsed as investors lost faith in its backing asset, a token called Luna. Rumours that Celsius had lost money on Terra and Luna led to a run on its deposits and in July Celsius filed for bankruptcy protection.
Three Arrows, a crypto hedge fund that had invested in Luna, had to liquidate. Losses on a loan to Three Arrows and contagion from Celsius forced Voyager into bankruptcy protection.
Meanwhile FTX’s trading affiliate Alameda Research and Voyager had lent to each other, and Alameda and Celsius also had exposure to each other. But it was the linkages between FTX and Alameda that were the two companies’ undoing. Like many platforms, FTX issued its own cryptocurrency, FTT. After this was revealed to be Alameda’s main asset, Binance, another major platform, said it would dump its own FTT holdings, setting off the run that triggered FTX’s collapse.
Genesis Global Capital, another crypto lender, had exposure to both Three Arrows and Alameda. It has suspended withdrawals and sought outside cash in the wake of FTX’s demise. BlockFi, another crypto lender with exposure to FTX and Alameda, is preparing a bankruptcy filing, the Journal has reported.
The density of connections between these players is nicely illustrated with a sprawling diagram in an October report by the Financial Stability Oversight Council, which brings together federal financial regulators.
To historians, this litany of contagion and collapse is reminiscent of the free banking era from 1837 to 1863 when banks issued their own bank notes, fraud proliferated, and runs, suspensions of withdrawals, and panics occurred regularly. Yet while those crises routinely walloped business activity, crypto’s has largely passed the economy by.
Some investors, from unsophisticated individuals to big venture-capital and pension funds, have sustained losses, some life-changing. But these are qualitatively different from the sorts of losses that threaten the solvency of major lending institutions and the broader financial system’s stability.
To be sure, some loan or investment losses by banks can’t be ruled out. Banks also supply crypto companies with custodial and payment services and hold their cash, such as to back stablecoins. Some small banks that cater to crypto companies have been buffeted by large outflows of deposits.
Traditional finance had little incentive to build connections to crypto because, unlike government bonds or mortgages or commercial loans or even derivatives, crypto played no role in the real economy. It’s largely been shunned as a means of payment except where untraceability is paramount, such as money laundering and ransomware. Much-hyped crypto innovations such as stablecoins and DeFi, a sort of automated exchange, mostly facilitate speculation in crypto rather than useful economic activity.
Crypto’s grubby reputation repelled mainstream financiers like Warren Buffett and JPMorgan Chase & Co. Chief Executive Jamie Dimon, and made regulators deeply skittish about bank involvement. In time this was bound to change, not because crypto was becoming useful but because it was generating so much profit for speculators and their supporting ecosystem.
Several banks have made private-equity investments in crypto companies and many including J.P. Morgan are investing in blockchain, the distributed ledger technology underlying cryptocurrencies. A flood of crypto lobbying money was prodding Congress to create a regulatory framework under which crypto, having failed as an alternative to the dollar, could become a riskier, less regulated alternative to equities.
Now, stained by bankruptcy and scandal, cryptocurrency will have to wait longer—perhaps forever—to be fully embraced by traditional banking. An end to banking crises required the replacement of private currencies with a single national dollar, the creation of the Federal Reserve as lender of last resort, deposit insurance and comprehensive regulation.
It isn’t clear, though, that the same recipe should be applied to crypto: Effective regulation would eliminate much of the efficiency and anonymity that explain its appeal. And while the U.S. economy clearly needed a stable banking system and currency, it will do just fine without crypto.
The actor’s Telluride property is as action-packed as his films.