New CEO Jeff Kip Will Streamline Operations And Strengthen Market Position

Key Takeaways

• Strategic focus on high-margin revenue, cost optimization, and product improvements anticipated to enhance profitability, net margins, and customer satisfaction.
  
• Spin-off and regulatory-driven consumer choice strategy are projected to improve competitive position, operational efficiency, and future earnings growth.
  
• Angi's reliance on improved execution and product positioning for growth faces risks that could impact long-term revenue stability and profitability.

Catalysts

Angi Inc. connects home service professionals with consumers in the United States and internationally.

• The appointment of Jeff Kip as CEO, with a focus on product improvement and enhancing operations, is anticipated to streamline processes, improve customer experience, and potentially achieve revenue growth. This could positively impact both revenue and net margins.
  
• A strategic decision to focus on high-quality, higher-margin revenue by discontinuing low-margin revenue streams, along with optimized spending, is expected to enhance profitability and cash flow, aiding in improved earnings.
  
• The emphasis on product improvements and building momentum for future growth, as Angi plans to focus on scaling operations again, is expected to drive higher customer satisfaction and eventually revenue growth, benefiting earnings.
  
• Angi's decision to implement consumer choice in response to regulatory changes, despite challenges, is projected to strengthen its competitive position and improve market share, potentially leading to increased revenue and improved net margins.
  
• The upcoming spin-off of Angi and a standalone public company status could lead to more focused strategic initiatives and investments, expected to improve operational efficiency and growth, ultimately benefiting future earnings.

Angi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Angi's revenue will decrease by 1.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.0% today to 5.7% in 3 years time.
• Analysts expect earnings to reach $65.2 million (and earnings per share of $0.13) by about March 2028, up from $36.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.4x on those 2028 earnings, up from 22.5x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 17.9x.
• Analysts expect the number of shares outstanding to decline by 0.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.94%, as per the Simply Wall St company report.

Angi Future Earnings Per Share Growth

Risks

• Angi's past challenges with profitability, such as the decrease from $260 million in EBITDA to $35 million, highlight risks in execution which could impact future financial gains, especially in EBIT margins.
  
• The significant reduction in capital expenditures from $115 million to $50 million, while a corrective measure, may lead to limitations in future growth opportunities and affect revenue growth.
  
• Past efforts to enter the services business internally were not executed well, shedding light on the risk of potential operational missteps in strategic initiatives that could affect future earnings.
  
• The necessity to remove low-quality, low-margin revenue to regain financial stability indicates potential volatility in revenue streams and a focus on profit over growth, signaling potential future revenue instability.
  
• Angi's reliance on anticipated future product improvements and market positioning as primary growth drivers exposes the company to execution risks that could influence long-term revenue growth and net margins.

Valuation

• The analysts have a consensus price target of $2.8 for Angi 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 $6.0, and the most bearish reporting a price target of just $1.8.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $65.2 million, and it would be trading on a PE ratio of 27.4x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of $1.61, the analyst price target of $2.8 is 42.5% 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.