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EverQuote Crushes Expectations As It Enters Well being Insurance coverage

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Thesis

EverQuote (EVER) reported a stellar quarter of revenue growth and the shares popped as high as 30% following the report.

The company reported strong quote generation traffic on its website and saw strong revenue growth across its insurance categories, of which auto is currently its biggest. The company raised revenue guidance 12.5% going into the end of the year, and with just north of $200 million in annual revenue, the company believes it has plenty of runway in what it considers a >$100 billion addressable market.

With a market cap of less than $1 billion, EverQuote says it is already the largest independent insurance marketplace in the country. The company just reported its first net profit since going public last year. With an increasing focus on data science and artificial intelligence to boost insurance sales conversion rates, the company continues to retain preexisting insurers and expects to grow revenue 20% a year long-term.

Recent Results

EverQuote operates an online insurance marketplace. The foundation of the marketplace is auto insurance sales, but the company is now branching out into new areas, including insurance for health, life, home, and renter. Auto generates 85% of revenue. The company says it is already the largest independent marketplace for insurance in the U.S.



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The company believes it differentiates itself from competing marketplaces by using data and artificial intelligence to simplify the shopping experience for consumers and increase the likelihood of a sale for insurers. EverQuote went public last year.



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Revenue growth in Q3-19 was 61%. Operating losses narrowed substantially. Quote request traffic increased 81% to 5.5 million. Revenue per quote request declined 11%, but cost per quote request declined 13%.

EverQuote is free to consumers. Revenue is generated by making consumer referrals to insurance providers. The retention rate of preexisting insurers is high, as 93% of revenue in Q3 came from insurers that have been participating on the platform for more than a year. And nine of the platform’s ten largest insurers increased their spend in Q3 compared to a year ago. The company has amped up hiring from data scientists to data engineers to work on the continual improvement in shopping experience. The company says deepening its integrations with insurers is a key component to reducing friction and increasing conversion rates.



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While the company’s core business is auto insurance, its new verticals provide growth potential, and it believes that health insurance could eventually become its largest source of revenue. The company just entered health, onboarded nine health insurers recently, and will be participating in its first Medicare enrollment period.

The company believes it can achieve long-term revenue growth of 20%. It boosted full-year revenue growth guidance by 12.5% and expects to generate at least $215 million in revenue. The company believes its addressable market is $120 billion.

Valuation

EverQuote just turned its first net profit as a publicly traded company. It was a paltry $200,000, or $0.01/share, but Wall Street was expecting a loss. The company also generated $3.7 million in free cash flow after being free cash flow negative the first half of the year. EverQuote revised its adjusted EBITDA expectations up going into the end of the year, and believes it can sustainably grow revenue long-term by 20% a year.

Conclusion

EverQuote is a small growth company with a lot of upside potential if it can continue to gain traction in multiple insurance markets. Based on its insurer retention rate and optimistic outlook of long-term revenue growth of 20%, shares look interesting at current levels. I may study the competing online solutions and true differentiation before considering a position.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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