On Wednesday, Citi issued a downgrade for ANGI Homeservices (NASDAQ: NASDAQ:ANGI), shifting its rating from Buy to Neutral. The firm also adjusted the price target for the company's shares to $2.00, a decrease from the previous target of $3.25.
Citi's decision comes in light of the third quarter results which were deemed satisfactory, and news that IAC is considering a spinout of its stake in Angi. However, the anticipated turnaround for Angi is now expected to be delayed until 2026, prompting the reassessment of the stock's outlook.
The analyst from Citi noted that while the third quarter performance met expectations and a potential spinout by IAC could be beneficial in the long term, Angi's ongoing product enhancements and investments have been intricate and have taken more time than initially anticipated. This has had an impact on the company's growth trajectory. Despite management's effective handling of profitability and product improvements, these changes have not yet spurred the anticipated growth, as the management team continues to identify and address issues within the platform.
The report from Citi further elaborated on the challenges facing Angi, stating that while there is belief in the company's long-term potential, the near-term prospects offer limited upside. With Angi's shares trading at approximately 8 times the estimated 2025 EBITDA, Citi suggests that there are more compelling risk/reward opportunities available within its coverage universe.
The potential spinout of Angi by IAC to its shareholders is cited as a factor that could positively influence the company's prospects, especially in the long term. Nevertheless, Citi is looking for clearer visibility on the completion of Angi's product enhancements and investments, which have proven to be more complex than expected.
In conclusion, Citi's revised stance on ANGI Homeservices reflects a cautious approach, taking into account the extended timeline required for the company's growth initiatives to bear fruit and the current market valuation. The firm emphasizes the need for better growth indicators and more attractive investment opportunities elsewhere.
In other recent news, ANGI HomeServices has been downgraded from Buy to Neutral by Goldman Sachs due to ongoing revenue challenges and an uncertain timeline for positive revenue growth. Concurrently, parent company IAC/InterActiveCorp (NASDAQ:IAC) is considering a strategic spin-off of its profitable subsidiary, Angi Inc. This decision comes amid a 26% increase in IAC's digital advertising revenues and a significant stake in MGM. However, IAC also reported a 7% decline in performance marketing.
Goldman Sachs' downgrade follows ANGI's third-quarter results that showed a consolidated revenue drop of over 15% year-over-year. This decline is expected to persist into the fourth quarter of 2024 and the first quarter of 2025. Despite this, ANGI's international segment, particularly in Europe, has shown resilience with a 15% year-over-year revenue increase.
These developments come as ANGI reported efforts for an operational turnaround, with management expecting positive results in 2026. IAC/InterActiveCorp, on the other hand, expects a revenue decline in early 2025 due to new FCC (BME:FCC) regulations, but anticipates sequential growth afterward. The company is also optimistic about leveraging OpenAI technology to enhance advertising capabilities and sees a strategic pivot towards long-term investments in customer experience and digital capabilities. Analysts from various firms have noted these recent developments and the potential for growth in digital advertising revenue.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on ANGI Homeservices' current financial situation, providing context to Citi's downgrade. The company's market capitalization stands at $959.73 million, with a P/E ratio of 36.27, indicating that investors are still pricing in some growth expectations despite the recent challenges.
InvestingPro Tips highlight that ANGI's net income is expected to grow this year, and the company has been profitable over the last twelve months. This aligns with Citi's observation of management's effective handling of profitability. However, the stock has taken a significant hit recently, with a 23.72% decline in the past week and a 24.9% drop over the last month, reflecting the market's reaction to the delayed turnaround expectations.
Interestingly, InvestingPro data shows that ANGI's revenue for the last twelve months was $1.22 billion, with a 12.6% year-over-year decline. This revenue contraction supports Citi's concerns about the company's growth trajectory. The stock's current price of $1.93 is well below both the analyst fair value target of $3.25 and InvestingPro's fair value estimate of $3.09, suggesting potential upside if the company can execute its turnaround strategy successfully.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for ANGI Homeservices, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.