People Incorporated (IAC) Earnings Call Transcript & Summary

Let's see. Well, couple of minutes late, so let's jump right in. Thanks, everyone, for joining. Thanks so much for being here. So we're going to do this in a fireside chat format. [Operator Instructions] I'm Ygal Arounian. I cover Internet at Wedbush. I'm really glad to have Angi's CEO, Oisin Hanrahan with us here next. Angi has a really unique model around home services. It's still the largest marketplace for home services. Investing in the business to be more on demand to really capture a larger part of the home services addressable market and have Oisin here talk us through the key trends and opportunities coming up for Angi. Really, thanks for being here today.

Great to be here. Thanks for taking the time to do it.

Yes. So I want to start with kind of a high level, talk about the transition of Angi over the last year. So with the rebrand, the shift to services, subscription models, kind of all the moving pieces. We've come a long way. It also feels like there's still a good amount to go to where we want to get to. So I just want to start at a high level there, give you an opportunity to kind of set investors where Angi is on its evolution right now.

Sure. So I guess let's go back even further, so let's start all the way at the top, which is over the last 1.5 decades, maybe 2 decades, Angi solved 1 very specific problem, which was how to help pros grow their business and build a very successful Ads and Leads product doing that, where for a subset of pros -- of the millions of pros in the United States, a couple of hundred thousand of them figure out how to use Angi incredibly well to grow the business as a performance market channel and deliver great ROI to pros. There were 2 challenges with that. One is it wasn't for every pro, so not every pro could make it work. And then the second challenge is we generated an enormous amount of consumer demand that we didn't have a pro for. And as a result, the product for consumers wasn't as great as we wanted it to be. So if you think about it, pros want to grow their business. Every pro wants to run the business pretty much and consumers want to get the job done. And for a subset of pros, the Ads and Leads product was a great way to grow the business. And for associated consumers, it was a great way to get the job done. If you think about that, it means that for a lot of pros, this was a great way for them to grow their business, and they weren't -- it wasn't a great fit for their products. And for some consumers, this wasn't a great way for them to get the job done. So we went at it and we said, what can we do to solve that problem? What can we do to solve for the fact that really we want every consumer that comes to Angi to always be able to get their job done. And we want to offer an amazing way for every pro to grow their business within the Angi network. And that was where Services started. So Angi Services started with the idea that for the consumers -- and about half the consumers that were coming to Angi under the Ads and Leads product, we didn't have a pro for them. We said for those consumers why don't we sell them a service. So instead of them thinking, hey, we're connected them with pros, we'll just figure out how to sell you this service. And similarly, when we had that service sold to a consumer, we said, why don't we go find a pro to do the other side of this transaction? So why don't we go to pros who are not in our ad network, not in our lead network, and why don't we figure out how to match them with this consumer that wants services done? And over the last few years, we built out that business to a place where it works in a lot of categories. And we've gotten to a world where we're now no longer looking at them -- about half our consumers are saying we're not serving them. For the vast majority of people that come to Angi today, we offer them a solution to get the job done. So we offer them either a connection with an ad pro, lead pro or we just offer them a service to buy from us and then we go and match them with a pro. And during the last couple of years, we've made -- over the last couple of years, we've made amazing progress on delivering on that promise of we're going to help every consumer get the job done, and we're going to help every pro grow their business. What that means in terms of economics is Angi Service as a part of the business continues to grow pretty substantially. So it's up from 15% of revenue in Q4 2020 to 27% of revenue in Q4 '21, continuing to double year-over-year in terms of revenue in that business, and we're seeing progress on all the metrics. Of course, there's a lot of stuff we've got to still figure out a lot of things we've got to do. But you rewind when we went in this journey 3 years ago or 3 or 4 years ago now, and we're ahead of plan. So we're ahead of where we thought we would be in terms of capturing market. We've proven some of the 3 key things. Consumers are going to buy the service from us at everything from $200 to $200,000 jobs. We're going to be able to get pros to do the work, and we're going to be able to make a margin. So those are the 3 key things that we had to prove. Now we've got to scale it. So it's at a $100-plus million a quarter right now, but we got to scale it to $1 billion a quarter. And we're on a path to doing that, and we feel really good about the journey that we're on. Meanwhile, the Ads and Leads business continues to perform pretty well. So if you think about that business, it performs best when there's more pro supply than consumer demand. We're in a period during the pandemic when that dislocation has been the least favorable it's ever been. So there's been more consumer demand and less pro supply than ever before, and that gap is the largest it's ever been. And despite that, we've seen that the Ads and Leads business has been incredibly robust through that period. So overall, we feel really good about the backlog. We feel really good about the journey and the progress we've made, and we're ahead of time.

Okay, great. That's a great overview, and we'll definitely get into the Services business more and kind of dive into it. Just let's just start at the Ads and Leads business and that dynamic of too much demand, not enough supply. At the same time, you're also trying to kind of -- I don't know if maybe you would disapprove the way I would characterize it, but trying to move -- put supply into the Services network. How does -- how do we get to a place where the marketplace -- where the Ads and Leads marketplace could be in a better equilibrium? Is it just about the macro settling? Or are there things that you can do to kind of get it to where you want it to be?

Look, macro settling is the easy answer. It's not the answer we want to give. We want to be in control of our own destiny. We want to be able to create a great business, serve homeowners, serve pros irrespective of what the macro's saying. So of course, macro adjustments will help. However, set the macro aside, we are doing a few things to actually make the Ads and Leads business materially better. So the first is we've changed the type of pro we're going after. So we've changed it from, hey, we think every pro can work in Ads and Leads to say, actually, we've identified the types of pros that are going to be successful in Ads and Leads and let's target those products. So let's be specific about going after pros that have more capacity that are in categories that work for us that we know we have great ROI and great experience from certain pros and let's double down on those categories. The second thing we're doing is we're just making the raw product better. So things like online enroll, things like better pricing, investing in data science. For the first time ever, we brought on a Chief Data Officer. It was a quarter or 2 quarters ago now, and we're investing in real deep technology around how we're going to price ads, how we're going to price leads and help better match supply and demand. Because it's a very dynamic system. A lot of fluctuations in it. It's something where pros might think they're -- the pros think it's very easy to sign up and say, "hey, I want to spend $1,000 a month on leads at x dollars a lead," and we've got to figure out exactly which leads are best for that pro at any point in time. And then lastly, it does have to do with bringing on new pros. The pros we're bringing on to our Services business largely are very different to the pros working in our Ads and Leads business. And that means that we are bringing on new capacity every time we bring pros into the Services business. And if you think about that, we're obviously attempting to grow the Ads and Leads business, month-to-month, quarter-over-quarter. But year-over-year, we doubled the amount of business we're doing in the services business. So we've actually doubled capacity at a time when it's never been harder to find a plumber or enter a carpenter. We managed to double the amount of business we're doing in services Q4 '20 to Q4 -- or sorry, Q4 '21 than Q4 '20. And that speaks to the product market here. That speaks to the fact that when we do have a job sold to a consumer, it is appropriately priced, it is specced well, and it is easy to claim when we take care of things like payments, that -- it is very, very doable to go out and bring on more pro capacity. So I think those are the things we're doing to bring the market back into balance.

Okay. Just a quick follow up on that to clarify. You said the type of pro for Ads and Leads is different than the type of pro for Services. How are they different? What do you mean by that?

So there's different levels of engagement with the Services product. In certain -- you think about what you need to be successful in Ads and Leads, you need to have a strong front-of-house software. You need to have a strong marketing arm to turn the leads into sole jobs. So you need to be able to go out and be able to price the job, follow up on customer service, follow up with sale, do prospect management, do closing and sell it. And not every pro has a full set of skills in that department to go and turn leads into sole [indiscernible]. Similarly, for certain categories of service, we're actually going further than just selling the job on behalf of the growing connected growth. We're actually bringing together multiple contractors, and in some cases, bringing together the materials. So in addition to not needing to have front-of-house, in some cases, you don't need to have the working capital to buy materials because we're bringing the materials to the job. So we're bringing on effectively pros who only need to manage labor. So in certain categories, we're saying, "Hey, we're going to do the front-of-house, selling the job to the homeowner. We will bring the working capital and the necessary relationships to order the materials. What we need you as a pro to do is bring labor." So we're expanding the pool of pros who can be successful on Angi by bringing certain sundry services alongside what they could traditionally -- what they're traditionally required to bring to be successful in the platform, the excess.

Okay. Great. Yes, actually makes a lot of sense, and I appreciate that clarification. It's really helpful. It sounds like that could really do a lot to open up the pro pool for you guys when you're offering all that for the pros. Let's move on to the rebrand. That's obviously been a big factor as well. So you rebranded to Angi. You've talked about some improvements you're seeing in brand awareness and how Angi resonates with consumers. You're lapping those headwinds around now, right? And that's 1 thing kind of lapping them and just -- and then having the rebrand be a tailwind is another. So just how far are you until the Angi brands, the search metrics, traffic, kind of everything else is where you want it to be?

Look, I don't think we're ever going to be at a place where we sit back and say, "Oh, well, we're done now." I think it's -- everything is always going to be a work in progress, and that's just the very nature of going after an enormous category. At the same time, you're right. We're going to lap the rebrand pretty soon. So we'll lap the rebrand come end of March, and that definitely creates a tailwind from then on in terms of what the metrics look like. In terms of the overall reason and the logic as a reminder, we didn't just do a rebrand. We actually kind of did a couple of things all at the same time. We rebranded Angie's List to Angi which has a domain hit, and that's similar to what we lap. The second thing we did was we went from having effectively 2 brands in market to saying we've really only got 1 primary brand, and that brand is Angi. So instead of having HomeAdvisor-branded market, Angi-branded market, we said, "hey, our Angi brand is our primary brand." Of course, we still have HomeAdvisor, particularly in for searching end results. But Angi is now our primary brand. And that's led to some degradation in the HomeAdvisor over that period as we've moved our marketing dollars into Angi. The long-term reason to do this is we fundamentally believe that having 1 consumer brand and 1 primary pro brand helps build a relationship with the consumer. So in a world where we were going to disappoint a consumer half the time by not having a pro for them to do the job then yes, it makes sense to have as many brands as possible because consumers are going to churn through brands if they can't find what they want. Where we're seeing -- or what we're seeing now is we want to serve everything set. We want to make sure that every single homeowner that comes to Angi has a great experience. And as a result, it makes sense to get behind a single primary brand. And that means that we've got 1 main brand that we're going after. They all flow to the Angi consumer [indiscernible] lab. They all are -- all consumers are effectively being given the same promise, which is we want to help you get the job done inside your home. And overall, we feel pretty good about the direction we took. So the Angi organic traffic going in the right direction, Angi organic revenue going in the right direction. Overall, we said these things take 12 to 18 months. We've seen faster recovery than what we originally thought on some of the Angi property, particularly in the SEO Angi. But we definitely have some headwinds still on HomeAdvisor. Net-net, we feel pretty good about lapping the rebrand, and we think that you'll see that in the metrics.

Okay. Great. One thing that has popped up for you guys in the past is Google, and Google kind of is really one of your largest competitors and the way they surface listings, whether it's SEO or SEM. Does this solve that issue at all? Is that -- I know it was a headwind -- this is going back a couple of years ago, but is this -- does Google as a challenge still persist? Or is that kind of largely in the past? Does the rebrand help around that the move to the app? Can you just talk about that?

Look, the biggest thing we can do to shift from Google and shift from search dependency is develop a brand and a relationship with the homeowner. So every single time we get a homeowner to buy from Angi Services or to use Angi Pay and pay a pro, we get a credit card file, we deepen that relationship with the homeowner. We make it less likely that the homeowner comes back through google. Every time we get a homeowner into our mobile app, we make it less likely that a homeowner comes back through Google. Every time we get a homeowner to buy membership, Angi membership where we have a couple of hundred thousand people who pay us $30 a year to be a member, we make it less likely the person comes back through Google. So this is all about going down a path of developing a deeper relationship with the homeowner, so that instead of thinking, "Hey, where do I get my next thing done " They think, "Oh, I'm a member of Angi. I have the Angi mobile app, already got my credit card. I filed the last pro I payed through Angi, did a great job, and I actually have a relationship with Angi." All of those things are pushing us further down the path of higher repeat use, higher customer satisfaction, lower investment by Angi into customer acquisition, which frees up capital, develop return to shareholders, but also to invest in making the relationship with consumer even stronger, delivering a higher value prop, lower the take rate of pros by increasing payment getting even higher customer satisfaction to the homeowner. So we're in this cycle now where, for the first time, we have real levers to pull on the homeowner side that will allow us to deepen that relationship. Before this, we never had any levers. Because we weren't monetizing the homeowner. We go all the way back to the point I made at the beginning, Angi's business was built on helping pros grow their business. And that's great for building an ad business and a lead business. But if you want to build a deep relationship with the homeowner, you actually have to have homeowner -- real homeowner value props. And I think for the first time over the last couple of quarters, we started to really have those value props and we can see the business changing to being 1 where there is going to be much higher consumer repeat rate.

Okay. Great. So let's talk about those value props. Let's talk about services, go into some depth there because, obviously, that's where it sounds like you guys kind of view the future of the company in a lot of different ways. So maybe the best place to start is just kind of the different consideration sets, where Angi services is really getting the most kind of work or the types of jobs where you are now. You made the Total Home Roofing acquisition last year. Where are services fitting? Like what kind of jobs are they fitting the most right now?

Yes. So there's 2 primary ways to buy services on Angi. There's the small tasks where, think about it as you go to the store and buy a light fitting and you buy a beautiful light fitting either online or a store, come home and you say, well, I'm going to need to get an electrician to install this and you go to Angi. And you say install electrical light fitting. You pick a time and date. You can tell us how tall your ceiling is. You tell us how many counts the light fitting is. You tell us there's already a light in -- a light fitting lighting in place that you'd like to replace. And we immediately quote you a price. We say it's going to be $189. And you give your address, you put in your credit card to pay, we dispatch a person. They show up. Before they show up, you can them arrive, the same way you watch Lyft driver or Uber driver arrive on a Google Map. And they install a light fitting, you rate them, the job's done. And we're doing that now at reasonable scale. So we've got that across dozens and dozens of categories across -- thousands and thousands of ZIP codes where that service offering works pretty well. And we're -- obviously always got opportunity to improve it. But in those couple of hundred dollar project size or the price point of a couple of hundred dollars, we've got pretty good take rate. We can deliver a reasonable scale pretty consistently across a good chunk of the country. There are more categories we're looking to get into and go deeper in. There's more ZIP codes that we need to go deeper in. But by and large, we figure out how to get that to work in our core initial set of categories. The second model is -- there's that model called Book Now. The second model is Managed Projects where you go online, you put it at ZIP code and you say, "I want to get my roof replaced." And you give us your address, we do some initial aerial mapping. We look at your roof and we say, great, we think your roof is going to cost between $8,000 to $12,000 to replace, put down a $100 deposit, and we'll get on a call with you and confirm exactly what the price is. And the deposits are refundable. And we then give you a call, we ask you a few more questions. We do some work. We pull some LIDAR data, and we pull some aerial photography and we come active pricing. You can either then immediately roll out financing or we can take credit card and take payment for the job. We then either dispatch one of our pros to do the work and they bring the materials or we have direct relationship with material providers in certain locations, where we also contract with them to do the materials, and we'll contract with the pro, provide the labor. And again, the same process, we collect payment, make sure that the funds are dispatched and the job is done, and we take care of whatever permitting is necessary. So we are -- in that world, we are in far fewer categories and far fewer geos, but scaling pretty quickly. And again, that's state by state, location by location. You got to have the necessary licenses, permits, and we're working through all that. But we feel really good about it because where we do have a presence, we notice our take rate is drifting upwards and we feel good about the take rate that we're getting to. And we notice that most of our jobs are now being done by repeat pros. So pros that have already done a job at a first managed projects job. So pros are coming back again and again to do more work on the platform because it's a great experience. They effectively don't have to manage the consumer. They don't have to sell the work. It's relatively risk-free for them because they're not paying for -- they're not putting money out to get the job. And we're seeing really high consumer engagement and consumer satisfaction on those managed projects, which again makes sense. So overall, we see those 2 paths, and we look at the data that we've got. We've kind of proven out, like I said, the 3 key things, which is where consumers are ever going to buy these services from us directly, could we deliver them? And could we get to a reasonable take rate on it? We've proven that out, and we're now just in execution mode of going deeper on each category and expectation to make sure that we can build an even more amazing experience. At the same time, we haven't even started to layer on consumer marketing to support this yet. So all of this consumer demand, all of this service revenue is being driven on the back of the excess consumer demand that we had in the original data business. And that's a really important point to think about, which is it's not that we're going out and driving new consumer demand yet. All we're doing is we're saying, hey, we're actually delivering a better experience to consumers we already had in our ecosystem and we're fulfilling that, creating more demand for pros that can do it and bringing more transactions effectively inside Angi without incremental consumer market.