New Tradie Platform Will Increase Efficiency And Customer Loyalty In Australia And New Zealand

Key Takeaways

• Migration to a unified platform and new features aims to boost recurring revenue, customer retention, and profit margins through increased user engagement and ARPU.
  
• Operational efficiencies and strategic brand investments enhance cost structures, supporting EBITDA margin expansion and potentially increasing earnings.
  
• Transitioning to a subscription model and platform changes pose retention risks, while increased tech investment and marketing expenses pressure margins if not balanced by revenue growth.

Catalysts

Operates as an online tradie marketplace in Australia and New Zealand.

• The migration of all tradies in Australia and New Zealand to a new single tradie platform and subscription model is expected to drive future growth in recurring revenue and ARPU, enhancing the overall revenue stream for hipages.
  
• The continued development of the hipages tradiecore platform and increased customer engagement with new features such as quoting and tap-to-pay functionality is anticipated to improve customer retention and ARPU, positively impacting net margins.
  
• The completion of tech migrations and the focus on increasing adoption of job management features may lead to higher client retention and brand loyalty, potentially improving profit margins and earnings.
  
• The strategic investment in brand marketing and new creative assets, which will not recur in the second half, should provide a more efficient cost structure and aid in expanding net margins.
  
• Enhanced operational efficiencies due to Manila operations and cost management initiatives could lead to improved EBITDA margin expansion and higher earnings.

hipages Group Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming hipages Group Holdings's revenue will grow by 11.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.1% today to 13.3% in 3 years time.
• Analysts expect earnings to reach A$14.5 million (and earnings per share of A$0.06) by about March 2028, up from A$-69.0 thousand today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.6x on those 2028 earnings, up from -2078.7x today. This future PE is lower than the current PE for the AU Interactive Media and Services industry at 49.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.46%, as per the Simply Wall St company report.

hipages Group Holdings Future Earnings Per Share Growth

Risks

• The migration to a full subscription model in New Zealand has led to expected attrition in tradie subscribers, impacting the overall tradie count and potentially affecting revenue if not mitigated by new subscriber growth.
  
• Increased marketing and brand investment resulted in a decrease in EBITDA margin by 1 percentage point in H1, suggesting pressure on net margins if spending continues to not yield proportional revenue gains.
  
• The transition to the new single tradie platform carries execution risks; significant execution missteps could impact customer retention and ensuing revenue streams.
  
• There is a notable reliance on increasing the adoption of new platform features to drive higher customer retention and ARPU, which might not materialize if tradies are slow to adopt or see little value, potentially affecting revenue expansion.
  
• The company expects continued technology investment to remain at around 24% of revenue, though it seeks to reduce this ratio over time. If this reduction is not achieved, it could impact net margins.

Valuation

• The analysts have a consensus price target of A$1.797 for hipages Group Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$2.14, and the most bearish reporting a price target of just A$1.35.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$109.4 million, earnings will come to A$14.5 million, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 7.5%.
• Given the current share price of A$1.07, the analyst price target of A$1.8 is 40.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.