Spin-Off And Consumer Choice Transition Will Streamline Operations And Improve Customer Experience

Key Takeaways

• The potential spin-off could enhance revenue and capital allocation, while improving net margins by focusing on streamlined operations.
  
• Transitioning to a consumer choice model and leveraging regulatory advantages may enhance customer experience and competitive positioning, fostering future earnings growth.
  
• Angi faces revenue volatility risks from FCC regulations, competitive market challenges, and execution risks in consumer satisfaction and product transitions.

Catalysts

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

• The potential spin-off of Angi could create two focused companies, providing Angi with a more liquid currency and the ability to have a stand-alone ambitious strategy, which could positively impact revenue and capital allocation strategies.
  
• Improved consumer experience and increased focus on jobs done well have led to growth in key metrics such as job completion rates and customer satisfaction, setting a foundation for future revenue growth.
  
• Transitioning to a consumer choice model is expected to enhance long-term customer experience and business trajectory, despite some short-term revenue declines, ultimately benefiting revenue and retention.
  
• Strategic moves to improve profitability and streamline operations through the potential spin-off are likely to stabilize and enhance net margins over time.
  
• Anticipated benefits from the FCC’s one-on-one consent rule and Angi’s ability to capitalize on the new landscape post-order could provide a competitive advantage, contributing positively to future earnings growth.

Angi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Angi's revenue will decrease by -0.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.3% today to 3.7% in 3 years time.
• Analysts expect earnings to reach $45.4 million (and earnings per share of $0.09) by about December 2027, up from $39.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $52.7 million in earnings, and the most bearish expecting $36 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 44.2x on those 2027 earnings, up from 21.6x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 25.4x.
• Analysts expect the number of shares outstanding to grow by 2.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.35%, as per the Simply Wall St company report.

Angi Future Earnings Per Share Growth

Risks

• The discussion of volatile revenue patterns and potential revenue declines due to the regulatory changes by the FCC and movement to consumer choice indicate that Angi's revenue could be negatively impacted in the short term.
  
• Ongoing dependency on consumer satisfaction and retention for profitability suggests execution risks in improving consumer experience, which could affect future net margins and earnings if not managed effectively.
  
• The potential impact of the FCC's one-on-one consent rule introduces uncertainty, with expected revenue volatility indicating a risk to revenue predictability in the near future.
  
• Market challenges, such as competition with established platforms like Google and word-of-mouth advertising, could continue to make significant market share gains difficult, impacting long-term revenue growth goals.
  
• There is inherent risk in execution and integration associated with the transition to a unified Ads Pro product, potentially leading to disruptions in revenue streams and service offerings.

Valuation

• The analysts have a consensus price target of $2.98 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 $2.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.2 billion, earnings will come to $45.4 million, and it would be trading on a PE ratio of 44.2x, assuming you use a discount rate of 8.4%.
• Given the current share price of $1.73, the analyst's price target of $2.98 is 42.0% 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.