CRCM - Care.com

[ratiman]

I haven't looked at Care in a while but it looks good here. You're buying it at about $210M EV and $11M ebitda for 2016. The biggest problem and the reason for the recent price decline is an actual decline in yoy US consumer users. To recap, that's caused by the shift to mobile and the 30% tax (15% in the second year) which Apple takes on all app purchases that are subscriptions and not transactions. As a result Care is trying to increase transactional hires (like Datenight) and also sell expensive annual subs in the app store. Anyway the reason I don't think the decline in US consumer users matters is that *Care makes very little money in the US consumer business.* That user base is very valuable but currently Care is having a lot of trouble squeezing cash out of it because of high churn. Nearly all the ebitda is made in the tax business called Homepay. Homepay is a cash cow with low churn and 55% ebitda margins which is great, but it's a boring tax business. The other business is Care@Work.

 

Here are some comments from management on Care@Work:

Our enterprise solution Care@Work is proving to be a significant driver of growth for us and 61% in Q3 versus prior year. More employees are turning to family care benefits as a competitive advantage to help attract and retain talent. 

 

Our enterprise mobile app gives employees access to on-demand backup care services and our HR dashboard gives quite accurate real time information about utilization. This transparency leads to confidence that their benefits dollars are being spent wisely and we believe it to be an important differentiator relative to our competitors.

 

In addition, in Q3 we introduced a new Care@Work sales channel with dedicated inside sales reps focused on selling to small and medium-sized companies. Those [indiscernible] than a 1,000 employees now that we've expanded our offering to include SMB’s more broadly we estimate that our addressable market is substantially larger.

 

We estimate about a size of about 10,000 companies in the U.S. with more than a 1,000 employees and we've shared before that we believe that anywhere between 2 billion to 4 billion in terms of a TAM. With the SMB opportunity we know that the TAM has grown significantly and we estimated it's roughly north of 10,000 companies.

 

Admittedly Care@Work is currently a very small business, and will probably only generate between $14M-$16M in 2017. What's important about that business is that it promises a viable way to get Care off the churn treadmill; retention is over 100%, so negative churn, which does wonders for growth and profitability.

 

Care has a large hidden asset in its 20M user base; the cost to recreate that marketplace would be, in my opinion, at least $500M. Care@Work is the way to unlock that value.

 

Here is managment again:

 

This contains to be a really large market opportunity for us and we're able to grow and monetize it with limited investment in a sales organization given the investments that we've done on the U.S. consumer side for the main product.

[cameronfen]

Anyone looking at buying crcm?  It looks like both the customers and the stock market is starting to forget the hugely negative WAJ article.  Crcm also put more effort into vetting nannies.  You can buy this for around 275 million EV which is only a bit more expensive than 2 years ago and you got about 30% or so growth in revenues.  This is a two sided market but a relatively weak one.  The main attraction is that this seems like a decent business, not as good as upwork so see the discussion there, but is now trading at 2x EV/gross margin.  In comparison EBAY is trading at 3.5x and is growing much slower.  Not really an apples to apples comparison, but sort of highlights the disconnect. 

[InelegantInvestor]

I agree that CRCM is interesting. Bought in a few months ago on their big drop.

[cameronfen]

IAC offered to buy this at 15.00.  Stock trading above this level though.