Porch Group (PRCH) Reports Q2 Results
Porch Group (PRCH) reported yesterday afternoon with results coming in ahead of management guidance and significant contributions from acquired companies. Despite the strong high-level numbers, the stock is selling off today and we’re going to step aside with the modest profit we still have (around 25%). Moving to SELL.
Details: Porch’s revenue grew by 200% to $51.3 million as the company sold more software to companies and generated more transactions per company. Recall that the majority of Porch’s revenue (around 65%) comes from move-related transactions while around 25% comes from software and services subscriptions. The remaining 10% comes from post-move transactions.
For the full year, management says the company should generate nearly $184 million in revenue, which implies 155% revenue growth. Of that, roughly $54 million (30%) is acquired growth from the Homeowners of America (HOA) and Rynoh acquisitions. There is little doubt the HOA acquisition has had a material impact on the numbers.
So why sell?
The issue I see is that the vast majority of Porch revenue is tied to the pre- and post-move activity (around 75%) and if we step back and look at the real estate market it seems that things could cool down in 2022. At the very least, it’s hard to imagine the market getting stronger. If real estate transactions decline Porch could see some pressure on revenue growth. That said, the acquisition of HOA offsets this somewhat as having an InsurTech business in house offers a more diversified revenue base. The challenge there is that investors are not rewarding InsurTech companies. Just take a look at stocks like Everquote (EVER), Lemonade (LMND), etc.
Stepping back, we see that PRCH stock recovered from the April lows then failed to make any new progress this summer. Today’s volatility (down 10% now) after earnings has me concerned about the stock’s ability to move materially higher in the coming months, therefore putting our 25% gain at risk. When coupled with the aforementioned risks, it seems safer to step aside now and keep an eye on the stock. So that’s what we’ll do. SELL