The Prognosis For Porch Group In 2023 (NASDAQ:PRCH)

Discussion is impossible with someone who claims not to seek the truth, but already to possess it.”― Romain Rolland.

We first profiled Porch Group, Inc. (NASDAQ:PRCH) in April of last year. We labeled it a “SPAC debacle” in that article. However, the shares seem to be trying to form a bottom at current levels. The company recently announced a new CFO as well as two new board members.

The CEO also has been personally buying shares of the stock. Is a turnaround on the horizon for this “Busted IPO” in FY2023? An updated analysis follows below.

Company Overview:

Porch, Inc. is headquartered in Seattle, WA. The company operates two distinct business segments. The first is built around insurance that offers property related policies through Porch’s own risk-bearing carrier and independent agency as well as a risk-bearing home warranty company. The second or “Vertical” segment provides software and services to home services companies and gives early access to homebuyers and homeowners. The stock currently trades just north of two bucks a share and sports an approximate market capitalization of $185 million.

Third Quarter Results

On November 8th, the company posted third quarter numbers. Porch lost 88 cents a share on a GAAP basis, two thirds of which was due to a one-time goodwill/impairment charge. Revenues rose just over 20% on a year-over-year basis to $75.4 million, which was more than $6 million under expectations.

Vertical Software revenue made up $44.5 million of overall revenues while insurance fees/sales accounted for the rest. The company’s insurance business was negatively impacted from the costs of Hurricane Ian as well as cost-inflation of claims. The company did recently get a 25% policy increase approved in Texas and a 35% fee increase in Texas.

Through the first nine months of FY2022, Porch has seen sales of $208.7 million, a huge increase from the $140.9 million worth of revenues from the same period in FY2021. The average companies in the third quarter Porch serviced increased to 30,951 from 20,419 in the third quarter of 2021. However, the average revenue per account per month in quarter decreased to $812 from $987 from the same period a year, driven primarily by macroeconomic impacts to the move and post-move businesses.

On the consumer side, the average revenue per monetized service grew to $181, from just $133 in 3Q2021 even as the number of monetized services in quarter was 318,452 was off some six percent from the same period in FY2021. Management cut full year revenue guidance from $295 million to $275 million for FY2022.

Analyst Commentary & Balance Sheet:

Since third quarter results were posted, three analyst firms including Oppenheimer have reiterated Buy ratings on PRCH. Two of these contained downward price target revisions. Price targets proffered range from $3 to $7 a share. JPMorgan downgraded the shares the equity to a Neutral on November 9th.

Approximately 15% of the outstanding float in the stock is currently held short. The CEO of the company has added more than $1.3 million to his stake to Porch since November with the intentions of purchasing $5 million worth of stock. Porch’s COO also purchased over $500,000 in aggregate of shares via one transaction in August and another in November of last year.

The company posted a GAAP net loss of $86.4 million for the third quarter. However, that included a $57.1 million goodwill and intangible impairment charge. Porch ended the quarter with just over $265 million worth of cash and marketable securities on its balance sheet against long-term debt of approximately $425 million. The company announced a $15 million stock repurchase plan in November.

Verdict:

The current analyst firm consensus is for Porch to lose $1.50 a share in FY2022 even as sales rise more than 40% to $275 million. Losses are projected to cut in half in FY2023 even as sales growth roughly halves.

The recent insider buying is encouraging as is the recently announced stock buyback authorization. However, this is not enough to recommended buying the huge dip in Porch Group, Inc. shares. The stock still has a large short position. More importantly, the company continues to print off large quarterly losses despite solid revenue growth. Declining activity in the housing market is likely to remain a headwind in FY2023.

Porch Group, Inc.’s balance sheet is in good shape at the moment and the company has no immediate needs to raise additional funding. However, until Porch Group, Inc. significantly reduces its quarterly cash burn rate, I plan to remain on the sidelines.

A lie doesn’t become truth, wrong doesn’t become right, and evil doesn’t become good, just because it’s accepted by a majority.”― Booker T. Washington.