EverQuote (EVER) is an online insurance marketplace that connects consumers with insurance providers. The company earns a majority of its revenues from auto insurance providers, and its fiscal performance depends largely on the performance of the automobile insurance industry.
Last month, EverQuote announced its fiscal Q1 results with total revenues of $103.8 million, a jump of 28% year-on-year, with the automotive insurance vertical making up 81.4% of the company’s total revenue contributing $84.5 million, up 25% year-over-year.
The company reported adjusted EBITDA of $4.8 million versus $3.8 million in the same quarter last year.
Following the earnings, Oppenheimer analyst Jed Kelly reiterated a Buy and a price target of $55 (70.6% upside) on the stock.
Now let’s take a look at why Kelly is so bullish on the stock.
EverQuote’s First Quarter Highlights
EverQuote generates revenues through the sale of consumer referrals to insurance providers that consist of carriers, agents, and indirect distributors. The company supports three consumer referral formats.
The first kind of consumer referral is through an online-to-online referral, where the consumer is directed to the insurance provider’s website. The second is an online-to-offline referral where the consumer’s quote request data is sent to the insurance provider for follow-up. The third kind of referral consists of outbound or inbound calls between the consumer and the insurance provider.
The company also uses another metric called variable marketing margin (VMM), which is defined as revenue less advertising costs. EVER uses this metric to gauge the efficiency of individual advertising and the sources of consumer acquisitions that enables the company to make trade-off decisions to manage its return on advertising.
This VMM margin was $31.4 million in Q1, a jump of 32% year-over-year.
EVER is focusing on increasing consumer traffic to its online marketplace to improve monetization. In Q1, this led to a year-over-year rise of 22% in revenue per quote request. Digital carriers also increased year-over-year spend on the company’s platform by over 200% in the first quarter.
The revenue per quote request metric is the revenue earned for every website form submitted by consumers that contain data that is required to provide an insurance quote.
Kelly commented on the Q1 results in a research note to investors, “We believe the dynamic bidding aspect of EVER's auto product is scaling to mid-30s VMM margins as it becomes a go-to marketing platform for the mega carriers. Additionally, Home is benefiting from bundling and generating a similar margin profile to auto. EVER remains positioned to command outsized share as more insurance shopping shifts online leading to potential increases in estimates, in our view.”
EverQuote’s Financial Outlook
In the second quarter, EVER expects revenues of between $101 million and $103 million, an increase of 30% year-over-year at the midpoint, with VMM anticipated to be between $31 million and $32 million. The forecast for adjusted EBITDA is between $5 million and $6 million.
The company stated on its earnings call that it expects VMM as a percentage of revenue to be at a similar level to Q1 over the next few quarters “before expanding in Q4 with the influence of open enrollment within our health direct-to-consumer agency.” VMM as a percentage of revenue was 30% in Q1.
EVER raised its FY21 revenue guidance and expects revenues to be in the range of $434 million to $442 million, while the forecast for adjusted EBITDA is between $26 million and $30 million. The company anticipates VMM to range between $136 million and $140 million in FY21.
Kelly commented on the second quarter fiscal outlook, “Guiding 2Q revenue, $101–103M, 2% below Street, +30% y/y vs. +28% in 1Q despite 15pt easier comp appears conservative, in our view.”
Regarding the raised outlook for FY21, the analyst further added, “VMM, $136–140M, from $135–140M, reflecting modest margin expansion (4Q strongest), and 2% above Opco. We see upside to VMM if DTC [direct-to-consumer] growth trends continue. Updated '21E EBITDA, $26–30M is 1% above Street despite increased non-variable Opex on DTC initiatives.”
Non-Auto Insurance Verticals
In the first quarter, the company saw a 41% year-over-year rise in revenues to $19.33 million from other insurance verticals including home, life, health, and commercial insurance. This increase in revenues was led by the health insurance vertical that reflected the integration benefits from the company’s acquisition of Crosspointe, a direct-to-consumer (DTC) agency.
EverQuote acquired Crosspointe last year for an undisclosed amount. (See EverQuote stock analysis on TipRanks)
Seth Birnbaum, CEO of EverQuote said after the closing of the acquisition, “The acquisition broadens EverQuote’s access to the $130 billion commission TAM component of overall insurance distribution spend shifting online, and we expect it will increase revenue per quote request in our health insurance vertical, further growing and diversifying our company’s revenues.”
Kelly appeared to be bullish on the company’s use of multiple online channels, “We believe EVER is well positioned to gain share in the $154B insurance sales, marketing, and distribution market as its paid marketing competencies attract high-intent insurance shoppers through multiple online channels at scale, where it currently holds a 5–7x traffic advantage vs. its closest competitors.”
Wall Street’s Take
Analysts are bullish on the stock with a Strong Buy consensus rating based on 4 Buys. The average analyst price target of $58.75 implies approximately 82% upside potential to current levels.