Thread by @nsheth12

The more I think about it, the more I think $ANGI mgmt is totally sandbagging their guidance for the size of fixed price (FP) in the future.

In other words, I think FP will be much bigger than they’re saying it’s going to be. Read why below:👇

1/ On the latest earnings call, CEO Brandon Ridenour guided towards FP being about half the overall business by revenue, 5-7 years from now.

2/ The thing is, FP is accounted for on a gross revenue basis while the traditional business is on a net revenue basis - so them being the same size by revenue would imply the traditional business being much bigger in terms of gross transaction value (GTV) over the platform.

3/ Let me illustrate w/ some numbers.

Say that both the traditional biz and FP each do $2bn in revenue.

For FP, $2bn would be the GTV (total $ value of jobs done). For traditional biz, GTV would be revenues divided by take rate. Assuming a 10% take rate, $20bn in GTV.

4/ So you can see that equal revs = 10x+ more GTV for traditional biz than FP.

In other words, they’re guiding to traditional biz still being way way bigger than FP, even 5-7 years into the future.

5/ Does this make sense? Well, in 2019, CEO Ridenour said: “if you’re looking at this 10 years out, [FP] will be the dominant way people purchase home services.”

6/ On the most recent earnings call, “fixed-price” and “prepriced” were mentioned 35 times. Joey Levin only wrote two paragraphs about ANGI in his latest $IAC shareholder letter - yet FP was mentioned multiple times.

IAC/ANGI are really talking it up as a game-changer.

7/ And lastly, just from a logical perspective, if FP is a step-function improvement in experience for both the customer and SP, why would it be 1/10th the size of traditional biz by GTV? It should be as big or bigger.

8/ What does this mean?

Well, the traditional biz monetizes at a take rate of ~6.5% - since ANGI sets the prices in FP, Ridenour has said the take rate could be “several times” the current one.

9/ This means that for the same GTV, the profitability of FP would be several times that of the traditional biz!

10/ So why would ANGI mgmt sandbag?

Because it’s better to underpromise and overdeliver than the opposite - especially when the opposite is what you’ve done for the past few years.

11/ When HomeAdvisor and Angie’s List merged in 2017, they promised 20-25% rev CAGR over the next 5 years.

Clearly, that didn’t happen - growth was 17% in 2019 and 11% 2020. Even worse, as growth slowed, margins declined too.

12/ So there is a credibility issue with investors, and ANGI mgmt is probably very aware of this.

Also, ANGI’s controlling shareholder is IAC, and IAC definitely doesn’t want to have investor credibility issues.

13/ So, from their perspective, it's much better to be conservative now and beat later.

14/ Speaking of IAC, they’re super savvy investors/operators - so it’s important to look at how they’re allocating capital around ANGI. Few things:

15/

1) ANGI is buying back shares, in a big way. They spent ~half their FCF in 2020 buying back shares.

As @AndrewRangeley mentioned in his article from Oct, there are tons of other ways ANGI could use the cash - acquisitions, S&M, etc - but they chose to repurchase shares.

16/ Also, the stock is very illiquid/low float since IAC owns 85% - so it’s not easy to repurchase shares. But they still decided to do it.

17/

2) Once IAC spins Vimeo, ANGI is the major business left.

So by spinning Vimeo, IAC is in some ways betting the performance of IAC on the performance of ANGI. And by repurchasing shares, they’re actually increasing their exposure to ANGI.

18/ IAC’s actions themselves don’t necessarily mean that ANGI is sandbagging guidance, but they do indicate bullishness on IAC’s part.

And if IAC is bullish, I'm inclined to be bullish too.

19/ Anyways, there's a lot more to the ANGI story that I didn't cover here, but I wanted to put out some preliminary thoughts. I still have a lot of work left to do on it.