What a brutal six months it’s been for Angi. The stock has dropped 47.6% and now trades at $7.39, rattling many shareholders. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Angi, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Angi Not Exciting?
Even though the stock has become cheaper, we don't have much confidence in Angi. Here are three reasons why ANGI doesn't excite us and a stock we'd rather own.
1. Declining Service Requests Reflect Product Weakness
As a gig economy marketplace, Angi generates revenue growth by expanding the number of services on its platform (e.g. rides, deliveries, freelance jobs) and raising the commission fee from each service provided.
Angi struggled with new customer acquisition over the last two years as its service requests have declined by 21.3% annually. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Angi wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Angi’s revenue to rise by 1.1%. Although this projection indicates its newer products and services will catalyze better top-line performance, it is still below average for the sector.
3. Poor Marketing Efficiency Drains Profits
Consumer internet businesses like Angi grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).
It’s expensive for Angi to acquire new users as the company has spent 51.6% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates that Angi’s product offering can be easily replicated and that it must continue investing to maintain an acceptable growth trajectory.
Final Judgment
Angi isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 3.3× forward EV/EBITDA (or $7.39 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. Let us point you toward the most dominant software business in the world.
Stocks We Would Buy Instead of Angi
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