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History Rhymes: $FB attacks $MTCH / $ANGI

Posted December 16, 2020

This morning, ANGI stock fell ~5% on a news story that Facebook was plotting a rival service.

If you just thought about that announcement in a vacuum, ANGI's stock going down would make sense. In fact, you might even find a drop of only 5% a little puzzling. Facebook is probably the most powerful corporation in the world, and here's an article saying the company is planning to attack ANGI. At $6B market cap, ANGI certainly isn't a minnow, but its resources pale in comparison to Facebook on basically every scale (users, engineering talent, cash, etc.).

So the drop makes some sense in a vacuum.

Here's a counterpoint to that "thought in a vacuum": ANGI's stock should have been up on the news. Bigly.

Now, I'll admit I say that with more than a little bias. ANGI and their parent company, IAC, represent huge positions for me, and I've recently publicly laid out a very bullish case for ANGI and done a podcast focused on them with Boyar Value (PS- speaking of public bull cases, this ANGI deep dive by MBI was great and well worth the cost of subscription; I liked it more than my own write up which I do not say easily given my ego!).

So, bias aside, why do I think ANGI's stock should have been up on the news?

Let's zoom out a bit. On my podcast with Minion Capital, we discussed the "buy a category killing stock when a big tech company moves into their territory" (I think around the 27:50 mark when we discuss Match). It's scary in the moment to do so, but history suggests that the big tech players moving into a category 1) validates the space (often expanding the space!) and 2) happens a year or two too late for the big tech company to "catch up" and win the category.

What's so funny about the Facebook / ANGI story is that probably the best recent example of this "buy the entry" story happened to another IAC company in 2018. In early 2018, Facebook announced a move into dating, and Match's stock plummeted ~20%, from the high $40s to the mid to high $30s.

It's now late 2020. Match's growth was never impacted by Facebook dating; if anything, growth accelerated a little bit in the wake of Facebook's moves. And the stock has been an absolute homerun; it's currently trading >$150/share, and they've paid out ~$5/share in dividends along the way. If you had bought into the Facebook dip, you're a very happy Match shareholder.

Yes, that's n of 1, and ANGI is much different than Match (different categories, different scale issues, and the response has certainly been different with ANGI stock only down 5% versus MTCH's stock dropping 20%). But I highlight it because the relevant players and set up are very similar (Facebook prepping to attack an IAC company). There are plenty of other examples of category leading products that have survived assaults from bigger tech players (off the top of my head, Chewy survived Amazon, Netflix survived every large tech company, and even Facebook survived Google. There are plenty of other smaller category killers that have thrived).

Anyway, just a quick post, but I wanted to put something out publicly. When I originally wrote up ANGI, I said I thought it was a $60 stock in a few years. Facebook considering coming into the space does nothing to change that; if anything, it strengthens my conviction a little bit (and provides a clearer analogy; if ANGI performs exactly as MTCH did after Facebook entered dating; ANGI is approaching a $60 stock).

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2 years ago

I agree that in the immediate this move from Facebook bodes well for ANGI stock by validating the latent demand for services in the consumer economy right now. If you read the article from The Information they say "the company is exploring the gig economy industry after seeing an increase in demand for such jobs during the coronavirus pandemic this year."

However, where I think Facebook has a greater chance at success vs. Angie's List is internationally, particularly in emerging markets where Facebook and WhatsApp can often be the face of the internet, and business/commerce on the platforms is already much more deeply ingrained than in the U.S. where most of it has been unbundled with "Craigslist for x" over the last decade.

So, if you take the ultra long-view (as markets are at least pretending to do right now) the introduction of a strong, global competitor could limit ANGI's ultimate upside.

Key differences in this case vs. when they launched dating to compete with MTCH are 1) online dating was a more mature service at the time than online home services is now in my view 2) MTCH already had international scale with Tinder and 3) dating is social, whereas booking services is commercial. So for that reason I think people were/are more reluctant to turn to FB for dating than for services, for not wanting to mix and mingle their social media presence with their online dating life (separation of church and state, if you will). Meanwhile, people like FB Marketplace > Craigslist because of the real identity and security that provides. Of course, Angie's List provides this too but I think the point is whereas people don't want to mix social media and dating, they don't mind mixing social media and commerce/booking services. I think there's a lot of latent value in FB of the many embedded "free" (in my view) options in FB stock right now.

Pavel Kadera
Pavel Kadera
2 years ago

Would the contractors be keen on using ANGI as it would officialize their income? I know a number of contractors who do no receipt cash only transactions (win-win).

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