One of the more interesting stocks that I’ve had the pleasure of researching recently is EverQuote (NASDAQ:EVER). Breaking from my usual pattern of writing, I’m going to reveal the conclusion to that research first, since it prefaces the rest of this piece well. My conclusion: tread carefully with EVER stock.
In a nutshell, EverQuote is an online insurance marketplace that leverages data to match potential auto, home, and life insurance buyers with various insurance providers. Basically, Consumer A goes onto EverQuote’s website and fills out a quick survey that asks for various personal information. EverQuote leverages the survey data to match the consumer with various insurance providers, on the premise that they can give the consumer better and more flexible insurance options than anywhere else because of their unparalleled data-driven matching abilities.
Sounds like a great business, right? Use data to create a marketplace which connects insurance buyers to insurance sellers, then leverage that data and network effects to turn the marketplace into a necessary middle-man for insurance transactions everywhere. This promising growth narrative, coupled with the fact that EverQuote has delivered monstrous growth numbers over the past few quarters, has led to EVER stock breaking out from $5 a year ago, to over $30 today.
But, there’s a catch. Well, there are a few catches. And they should be enough to keep investors sidelined for the time being.
A Few Red Flags
On the surface, EverQuote looks like a great business. They operate at the overlap of Big Data and digital marketplaces, in a $100 billion-plus U.S. insurance industry, with 90% gross margins. Growth rates are accelerating higher, margins are expanding, and if all this continues, the company could one day produce huge profits at scale. But one quick Google search on EverQuote raises some red flags.
Reviews of the service across the internet are less than stellar. See these Clearsurance, Better Business Bureau, and Sitejabber reviews to determine for yourself whether-or-not EverQuote is a legitimate insurance company. The common theme is that EverQuote is just a lead generation site for insurance providers, which results in low quality leads and dozens of spam-like phone calls and e-mails for consumers who give the company their personal information.
Sure, all of those reviews could be misleading, generated by a few trolls who had a bad experience with the business. For what it’s worth, there are also a handful of positive reviews.
Even if you brush those red flags aside, there’s still this Bonitas Research report, which shows that despite the company reporting huge insurance request volume growth over the past few quarters, web traffic to everquote.com is rapidly falling, according to SimilarWeb data. There’s also the fact that all of the company’s most important insiders, including the CEO, CTO, and CIO, have been unloading shares in bulk over the past few months.
In isolation, any one of these red flags isn’t a concern. But when strung together, they should give investors pause, especially with EVER stock up at these elevated levels.
EverQuote Stock Fully Valued
I personally don’t think EverQuote is a scam. It is made up of and was founded by MIT grads, so they clearly know what they are doing in terms of crunching the data to match insurance buyers and sellers. Yes, the business may have its shady aspects, but overall, it seems like a solid, high-margin business that will continue to grow as insurance transactions migrate online, and consumers increasingly turn towards online-aggregated insurance marketplaces to find insurance policies.
Still, I wouldn’t buy EverQuote stock now, mostly because it’s too fully valued for its own good. The idea of creating an online insurance marketplace which leverages data to connect insurance buyers to sellers is a smart one. EverQuote didn’t come up with it alone. Insurify offers the same services, as does Compare.com. NerdWallet has jumped into the insurance comparison game, too.
In other words, this is a very crowded segment. And there isn’t much separating these platforms. They all perform the same service, and they all do it about equally as well as one another, according to consumer reviews.
Right now, EverQuote is growing rapidly despite this intensely competitive landscape because the company is so small (only $243 million in projected 2019 revenue). But as the company gets bigger, it will more aggressively rub elbows with competitors. As it does, EverQuote’s growth rates will naturally decelerate. The pace of margin expansion will also moderate, because in the absence of platform differentiation, EverQuote will have to rely on big spend to drive sustained growth.
Big picture: while EverQuote will keep growing, the pace of growth will rapidly decelerate over the coming years. At nearly 100-times forward earnings, EVER stock simply isn’t priced for this slowing.
Bottom Line on EVER Stock
When it comes to EverQuote, you have a promising company growing very quickly in a big space. But, you also have a lot of red flags, a super competitive environment, and an extremely full valuation on EVER stock.
All things considered, my final two cents here is simple. Be careful.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.