AI-Powered Diversification Will Improve Lead Quality And Open New Market Segments

Key Takeaways

• Focus on AI and machine learning to enhance lead quality and command premium pricing could boost revenue and margins.
  
• Diversification into non-auto insurance markets and disciplined cost management promote sustainable revenue growth and improved financial performance.
  
• EverQuote faces potential revenue impacts from growth normalization, high marketing costs, regulatory uncertainties, necessary tech investments, and competitive market fluctuations.

Catalysts

Operates an online marketplace for insurance shopping in the United States.

• EverQuote's focus on using AI and machine learning to optimize traffic bidding and improve lead quality suggests a potential increase in revenue and net margins as they provide higher-quality leads that could command premium pricing.
  
• The company's strategic emphasis on expanding beyond the auto insurance lead generation to include non-auto verticals like homeowners and small business commercial insurance could drive revenue growth through diversification and tapping into new market segments.
  
• Investments in a modernized tech stack and AI tools to enhance operational efficiency highlight the potential for improved net margins and operational leverage, with reduced costs boosting overall profitability.
  
• Strong carrier demand, driven by a recovery in auto and homeowners insurance markets, suggests an upward trend in revenue as EverQuote capitalizes on increased spend from carriers returning to growth mode.
  
• The disciplined approach to headcount and expense management, while achieving high revenue growth, indicates strong potential for further increases in adjusted EBITDA and cash flow, supporting long-term financial performance improvements.

EverQuote Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EverQuote's revenue will grow by 15.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.4% today to 8.1% in 3 years time.
• Analysts expect earnings to reach $62.9 million (and earnings per share of $1.55) by about April 2028, up from $32.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $70.1 million in earnings, and the most bearish expecting $55.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.3x on those 2028 earnings, up from 24.3x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 16.7x.
• Analysts expect the number of shares outstanding to grow by 2.88% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.38%, as per the Simply Wall St company report.

EverQuote Future Earnings Per Share Growth

Risks

• The potential decline in growth rate after a strong Q1 due to normalization of growth rates in the auto insurance market could impact EverQuote's revenue projections for the rest of the year.
  
• Despite improvements, the company still anticipates maintaining high marketing expenses, which could affect its net margins if not offset by proportional revenue growth.
  
• Dependence on regulatory changes, like the vacated FCC 1:1 consent rule, creates uncertainty which could impact EverQuote’s operating efficiency and potentially increase expenses.
  
• The need to continue significant investments in technology and data assets, while essential for growth, could strain capital resources and affect short-term earnings.
  
• Fluctuations in the regulatory and competitive landscape of the digital insurance advertising market could create instability in revenue growth, especially if competition increases faster than anticipated.

Valuation

• The analysts have a consensus price target of $33.833 for EverQuote 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 $38.0, and the most bearish reporting a price target of just $29.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $773.1 million, earnings will come to $62.9 million, and it would be trading on a PE ratio of 25.3x, assuming you use a discount rate of 7.4%.
• Given the current share price of $21.89, the analyst price target of $33.83 is 35.3% 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.