Checking out EverQuote (EVER)

Investment Analysis Clubs Saul’s Investing Discussions
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EverQuote (EVER) is a marketplace connecting insurance seekers to coverage. They operate in Auto, Home, and Life insurance markets.

Revenue comes from three sources,

  1. Lead generation
  2. Advertising - mostly from insurers
  3. Partner Programs and subscriptions

They get 10M unique visitors per monthly roughly. The company is 384 people and has a new CEO Jayme Mendal. EverQuote was founded in 2011 and IPO’d in 2019. Balance sheet is 61M cash, 3M debt.

Over the past year the financials look as follows,

Revenue
55M → 56 → 91 → 117

Revenue growth rate yoy
-46% → -37% → -17% → 72%

EBITDA
-7.6M → -4.4 → 3.0 → 7.5

Net income
-29M → -6 → 2 → 6

What has me most interested is how much their beat their guide by last quarter and how big a step up the company guided for. From last quarter,

Guides vs Actuals
Revenue 100-105M → 117M
VMM (Variable Marketing Margin) 31-33M → 36.5M
adj EBITDA 7-9M → 12.9

Then they guided Q3 as the following,

Revenue 137 - 143M
VMM 38.5 - 41.5M
adj EBITDA 14-17M

The revenue guide landing at the midpoint would be revenue increasing 155% yoy, and 20% qoq. Gross margins are 95%.

Here are a few other standouts from their last earnings,

  • strong enterprise carrier spend, +42% qoq and 3x from last year
  • revenue from auto insurance +32% yoy, +106% yoy
  • home and renters insurance +9% qoq, 29% yoy
  • adj EBITDA up 70% qoq to 12.9M and improvement from -2.1M a year ago

Some other relevant points from their last earnings,

  • VMM and adjusted EBITDA are new record levels
  • carriers continue to reactivate campaigns, restore budgets and reopen their state footprints in our marketplace
  • realignment of our cost structure last year
  • continued disciplined expense management, driving significant operating leverage as we scale
  • operating cash flow of 12.4M in Q2
  • ended with cash of 60.9M, up from 48.6M on previous Q
  • continue to see encouraging data out of the carriers, particularly their loss ratios and underlying combined ratios are steadily improving
  • FCC changes around robo calls, impacting 25-30% of business, “net-net, we’ll end up with slightly fewer leads but at higher prices”
  • expect to continue to be cash generative going forward from operations
  • continue to build data advantage which will help in the long term
  • really good incremental profitability with an 11% margin in the quarter
  • “there was a lot of favorable things that happened, particularly in the latter part of both Q1 and Q2 that allowed us to exceed our guidance”
  • “at the same time, there were some unfavorable things we had to adapt to and work through”
  • some carriers are getting to their comfort levels with underwriting profitability, if losses become more meaningful, could shake their confidence (concern of mine this was before the two major hurricanes)
  • good handle on the marketplace, should be in a good position to ride recovery
  • digital property insurance marketplace is a significant competitive moat
  • marketplace is fueled by data, technology, and customer acquisition platforms

My biggest concerns with the company are,

  • FCC changed advertising regulations, and unclear the impact so far
  • last updates on enthusiasm from insurers was before the major hurricanes
  • not entirely clear on their innovation engine and why advertisers and insurers are flocking to platform now
  • they had gotten up to over 100M in quarterly revenue before dropping due to what seems like cyclical downturns

Overall I’m finding this company attractive enough to start a tiny position and learn more. The guide they are giving from next quarter is an enormous step up for them, but I figure they must have some confidence to guide that high. The earnings is on November 4 and my confidence in them is low, but I’m willing to see if they can deliver on the numbers they expect.

I would be interested to get some more feedback on this company. It may not be the most exciting idea, but if their marketplace takes off it could be a much bigger company. The market cap is 625M, and if they are getting 140M+ of revenue and becoming more profitable on that revenue, it seems possible this company could run quickly to catch up with the growth prospects.

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Just taking a quick look at the financials, I’m curious about their operating leverage. The quarterly revenue is quite volatile, and their operating expenses track it very closely, being almost all marketing expense. R&D and G&A are pretty steady and a minor component:

Quarter Revenue ($M) Gross Profit Selling & Marketing Non-S&M OpeEx
24Q2 117.1 112.1 90.9 14.9
24Q1 91.1 86.0 70.8 13.5
23Q4 55.7 50.7 44.6 12.9
23Q3 55.0 48.9 46.5 12.0
23Q2 68.0 62.4 58.8 13.2

This suggests to me that any revenue they generate has very high customer acquisition costs, so even though it’s technically part of OpEx, it scales with revenue like COGS. So even if they scale their revenue dramatically, there’s not a lot of juice in the squeeze. From 23Q2 to 24Q2, they grew revenue from 68M to 117M, but operating income only went from -10M to 6M.

What would success for this business look like in 5-10 years?

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Good call out, I had not noticed that marketing spend is this large and correlated to revenue.

I am trying to understand how they had guided for 100-105M revenue and landed at 117M, as it seems like there is some new catalyst or efficiency. Sounds like they expected to spend 91M and get about 105M worth of revenue but got significantly more than expected. The guide to 137 to 143M on revenue is a large step up and I am wondering where management is getting the confidence for this. Maybe they did just increase marketing spend correspondingly, or there is some other factor at play. I believe this extra factor could be in reference to this metric mentioned above,

  • strong enterprise carrier spend, +42% qoq and 3x from last year

It sounds like some large clients are dramatically increasing their spend, and I am guessing they do not need to sell or market as much to these customers.

What would success for this business look like in 5-10 years?

Maybe something akin to the Priceline or Booking of insurance reservations. A hub where individuals, merchants, and insurers go to reliability find or sell insurance.

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There was a recent post suggesting some type of connection between EVER and ROOT. I have pursued defining any connection without success. Are you aware of a connection?

Drake

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Root is listed as a partner on EverQuote’s partner page, although this is a very long list of companies,

https://www.everquote.com/partners/

They also have an EverQuote landing page for Root which I assume drives traffic to Root who pays EverQuote for the lead,

I believe EverQuote is referring people to lots of different auto insurance companies depending on information about that user.

I’m unable to find anything about the depth of the partnership between Root and EverQuote though, or what percentage of revenue that would account for. Hard to say right now how much impact Root’s earnings will have on EverQuote’s results next week. Maybe this could be the reason though that the guide is strong for EverQuote on this upcoming quarter as they have visibility on the spend from companies like Root.

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EVER reported and landed at 144.5M revenue vs the guide of 137-143M which is +163% growth.

However, they guided next quarter for 131-136M which is sequentially down. While they said there is seasonality in Q4, I was hoping they would be able to guide to at least 150M indicating there is more of an underlying catalyst with the business.

Some numbers were impressive,

  • GAAP net income 11.6M vs -29.2M last year
  • adj EBITDA 18.8M vs -1.9M last year
  • cash flow 23.6M vs -4.1M last year

They have mentioned there is a new FCC rule going into effect in 2025 which will alter how about 30% of their business works. It is related to telephone call marketing and will likely lower their number of leads but increasing the pricing. They said net-net it may be even, but even EverQuote is hinting there is a lot of uncertainty here.

Between the lower sequential guide and the FCC rule change I decided to sell my shares. I will likely check in on the next quarter to see if they were just sandbagging, or there really is more seasonality and unpredictability to the business than I originally assumed.

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Strangely I discovered there are two other almost identical companies around the same market cap and they are public.

MediaAlpha (MAX), market cap 834M
QuinStreet (QNST), market cap 1.27B

All of these three businesses are impacted by the FCC rulings, and all three are benefitting from auto insurance leads. The financials look to be amazingly accelerating like almost every other insurer or insurance merchant right now,

QNST
Revenue
124M → 123 → 169 → 198 → 279 (+125% yoy)

MAX
Revenue
75M → 117 → 127 → 178 → 259 (+247% yoy)

It is even unclear to me how these businesses differ that much. I asked AI about what the differences are and got this,

  1. Focus: While all three companies deal with customer acquisition, EverQuote is more specifically an insurance marketplace, MediaAlpha provides broader customer acquisition solutions, and QuinStreet offers performance marketing across multiple sectors.
  2. Age: QuinStreet is the oldest (founded 1999), followed by EverQuote (2010), and MediaAlpha (2014).
  3. Location: EverQuote in Cambridge, MA; MediaAlpha in Los Angeles, CA; and QuinStreet in Foster City, CA.
  4. Size: As of the most recent data, EverQuote has about 137 employees, MediaAlpha has 137-200 employees, and QuinStreet has around 600 employees.

Tracking down what is going on with insurance it seems to be that legacy providers began moving up their prices in multiple rounds of price increases.

This has caused consumers to go shopping en masse for auto insurance. These companies such as QNST, MAX, and EVER are benefitting enormously, along with other auto insurance companies like ROOT on the policy generating side. It seems the same phenomena is also happening in home insurance but on a smaller scale, because all of these three companies report growing home insurance lead sales, but at a much lower growth rate than auto.

My own opinion is that auto industry insurance is in a peak cyclical moment. This trend could continue for a number of quarters but at some point consumers are going to settle down with companies and stop switching their auto insurance so much. It does not seem like a sustainable trend for auto insurers to keep raising rates and getting more profitable while they squeeze consumers on premiums upwards, one side of that equation is going to break at some point.

I am somewhat surprised these three companies are even public. It seems like a fairly niche business with a lot of competition and ups and downs. Wondering where the capital they raised from IPO’ing went, and what advantages a company like this being public would bring.

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