Recently we came across a SeekingAlpha piece that focused on the state of Porch Group. The company has raised more than $120 million to date. So we went to the company’s website and found an interesting presentation about where the company has been and where it’s heading.
Porch Group positions itself as similar to OpenTable and MindBody. Here is how it describes its flywheel:
- Porch provides software and services to home services companies such as home inspection and moving companies. These are essential services in the home buying and ownership ecosystem.
- Through these companies, Porch gains early access to homebuyers. This assertion suggests that Porch can identify those homebuyers who are about to buy a home and who will then be moving.
- Porch generates B2B2C transactional revenues by facilitating key and high-value service purchases for these consumers. This is how Porch believes it has created a flywheel.
An Unimpressive Topline
The company ended 2020 with about $75 million in topline revenue. This topline result doesn’t blow us away, given the company’s been in the local and home services space for almost a decade.
Take, for instance, Thryv. Its filings indicate close to 45,000 customers are on the Thryv Hub solution at an ARPU of $2,500. This works out to an estimated $113 million of annual revenue. This comparison suggests Porch either has many fewer SaaS paying customers and/or its ARPU is considerably lower. Oddly, the company is valued at $1.5 billion, while Thryv’s valuations hovers around half a billion dollars.
Finding Another Billion
In the presentation, the company says it expects its core business to add more than $400 million dollars in topline revenue over the next five to seven years. While this is interesting, the Porch team identifies an additional $1 billion of topline revenue. They suggest that “Mover Marketing” offers $200 million. We presume this involves selling and marketing its database of movers to the obvious prospects. Moving and storage, self-storage, locksmiths, window replacement. The list goes on.
This is a market that has had hundreds, maybe thousands of initiatives applied against it. And we’ve yet to see the compelling success story. Maybe the reason is that the scale and success of digital word of mouth — via Yelp and first-party reviews — is so powerful. That said, we’re eager to see what $200 million of “Mover Marketing” looks like and how challenging it is to make that resonate with the advertisers and importantly the homeowners and those in transition.
The second bucket of incremental revenue involves expansion in the insurance sector. Today the company operates as an agent and recently purchased HomeOwners of America (HOA). They expect this aspect of their business to add $400 million to the top line by evolving from an agency to a Managing General Agent o(MGA).
The third bucket of topline revenue growth is from something they label New Vertical. This involves entering a new home services sector via organic growth and acquisition. This bucket accounts for the remaining $400 million taking the topline via the three buckets to $1.5 billion.
These are ambitious estimates. But clearly, there is plenty of addressable market available. The chart below offers a view of what the company contends is its total addressable market. It shows a total market opportunity in excess of $300 billion.
Acquiring its Way to Growth
Given that the above chart suggests $1.5 billion in topline revenue, the obvious conclusion is there’s lots of headway for Porch. To accelerate its growth the company recently acquired two companies in the home services sector. They purchased PalmTech and iRoofing – specialized software for the home inspection and home roofing sectors, respectively.
PalmTech is an inspection report writing tool for home inspectors launched in 1998. Given the company’s founding dates back to the late 1990s, we would wonder if Porch was buying the company for its software or for its customer base. Since it has been around for a while, it is not surprising that the company’s business model is a one time license for $899. There is also a $50 per month subscription option, but it is unclear if that is a cloud-based solution built on new technology. Nevertheless, it is certainly a highly targeted vertical application.
iRoofing, the other acquisition noted in the investor presentation, is “a mobile software platform created & designed for roofing contractors to improve their presentation and sales capabilities. iRoofing is the Roofing industry’s first and only technology platform to visually present all major brands and roofing products and streamline business transactions between contractors, distributors, designers, and homeowners.” Started in 2012, the iRoofing appears to very much a SaaS model with a monthly cost of $129 for three devices. Presumably, this means phone, tablet, and laptop/desktop.
Proch Group didn’t disclose terms for either acquisition. Suffice to say, Porch appears to be pursuing a quasi-roll-up strategy in a couple of key verticals related to the home services sector.
More Acquisitions Coming?
The company maintains that there are some 1,000 acquisition opportunities in the space they are trying to scale in. Management has their eye on 150 of this total opportunity set. They claim to be in contact with 20 of them and are in deep discussions with seven. They expect to close four of these by the end of 2021. We’d expect they’ll be competing with PE firms like Vista on the one hand. And with a pure-play roll up shop like EverCommerce on the other.
We’re eager to see if Porch can pull this off. With more than $1.5 billion in market capitalization, it might just have enough powder available to make it happen.