Analysts expect this insurance online marketplace to grow at an annual pace of 151% over the next five years.
EverQuote, Inc. (EVER)
From Personal Wealth Advisor
EverQuote is new to the platform space, and insurance is the platform’s principal offering. So far, so good: EverQuote is already the leading online marketplace for insurance shopping.
The idea is fresh, but oh-so efficient. EverQuote’s platform enables shoppers to access clear and quick insurance-price comparisons. Insurance companies benefit by being provided with motivated shoppers. Twenty percent of the customers who request a quote end up purchasing an insurance policy. The customer benefits by saving money. EverQuote estimates that consumers save an average $610 buying insurance through its platform.
The service is free to consumers. Revenue is generated from of consumer referrals to insurance providers and advertising by the providers. In some instances, EverQuote receives commissions on insurance-policy sales. Revenue growth has been exceptional.
In 2018, the year EverQuote become a publicly traded company, it posted $163.3 million in revenue. Here we are, not quite three years later, and it posted $396.2 million in revenue for the trailing 12 months.
More high-octane growth is expected. Management is projecting revenue to grow another 30% year over year this year. Should 30% come to pass, revenue should post at around $442 million. Growth is expected to throttle back in 2022. Still, Wall Street projects 20% annual revenue growth next year. The company should end 2022 with roughly $534 million in annual revenue.
More double-digit growth is likely the future. Annual percentage revenue growth should be measured in the mid-to-high teens into 2025. When the spending trends are considered, it’s easy enough to understand why growth should remain robust. Based on industry sources, EverQuote expects online ad spending to grow more than 16% annually through 2024.
EverQuote is positioning itself to exploit the opportunity increased online spending brings. It acquired health insurance agency Crosspointe last year to raise its profile in healthcare. PolicyFuel LLC was acquired this past month to expand into property and casualty insurance. Look for EverQuote to further expand into life and home insurance.
The ability to scale and grow quickly is an immediate attraction of a platform model. Efficiency is another. Once the initial costs of establishing the platform are incurred, the marginal cost to support the next customer is practically zero. The business operates with very high gross margins. In EverQuote’s case, the gross margin exceeds 94%.
That said, when a company is in growth mode, it frequently must allocate a large percentage of the budget for acquiring customers. Selling and general administrative expenses are by far the largest expense on the income statement. EverQuote, like most high-growth companies, generates losses instead of income during these high-growth years.
The good news is that the percentage of loss relative to revenue growth trends lower. The trend is expected to hold going forward. The net margin was a negative 8.4% in 2018. It dropped to a negative 1.8% in the latest reported quarter. It should continue to drop and turn positive within the next two years.
Because losses are the norm, many high-growth companies are valued at a multiple of price to revenue. It is not unusual to see these companies priced at a high multiple of price to revenue, even while losses accumulate.
As for EverQuote, its shares are priced at only 1.1 times 2022 revenue estimates. EverQuote is not only growth at a reasonable price, it’s growth at an absurdly low price.
It wasn’t always so. EverQuote shares were priced more reasonably earlier this year. This shares traded in the low $50s as recently as this past February. They trade around $20 today. The financial numbers for the first two quarters have sent a platoon of investors to the exits.
EverQuote reported mixed financial results in the first quarter. It missed on the bottom line, reporting a $0.13-per-share loss. Analysts were expecting a $0.12-per-share loss. The top-line came in stronger than expected at $103.8 million, which beat the consensus estimate by $2.4 million. When in doubt, though, accentuate the negative. The share price dropped 30% after the numbers were reported.
The numbers for the second quarter were an improvement. Both revenue and the loss were better than expected. EverQuote reported $105.1 million in revenue for the quarter to beat the consensus estimate by $2.8 million. The loss per share, at $0.07, was three cents better than expected. Nevertheless, the share price continued its trek lower to around $20, where it is today.
Oddly enough, the shares trended lower, despite overall positive guidance: Management guided for 2021 revenue to land between $434 million and $442 million. Management previously guided for revenue to land between $430 million and $440 million. EBITDA, a cash flow measure, is expected to range between $26 million and $30 million. The previous range was $25-to-$30 million.
I see extreme value in EverQuote’s low share price. I have company in my vision. Five of the Wall Street firms that follow EverQuote rate it a “buy” with a share-price target above $50. What’s more, a few of EverQuote insiders have been keen to buy their company’s shares at this low price. One insider, board director David Blundin, recently acquired 48,305 shares at a cost of $925,500. Blundin appears to be all-in on EverQuote. His latest purchase lifts his ownership position to 2.75 million shares.
Deriving a price target on high-growth companies is more art than science. But when we vet the past, we find that EverQuote shares were priced as high as 4.8 times 2021 revenue estimates in July of that year.
Today, they are priced at 1.3 times. Even a returned to a two price-to-revenue multiple could produce a 50% return over the next few months. That’s not unreasonable. What’s more, Wall Street’s call for a share price above $50 also resides within the realm of reason.
Suggested Action: Buy EverQuote shares up to $25.
Ian Wyatt and Stephen Mauzy, Personal Wealth Advisor, wyattresearch.com, September 7, 2021