Description

Everquote (EVER) is an on-line insurance marketplace that sources consumer requests for insurance quotes and refers consumers to insurance carriers and third party insurance agents. EVER’s two largest customers are Progressive (22% of 2022 revenues) and State Farm (11% of revenues). The company, while never a great business, seems to have lost momentum in its core lead generation business and is likely to continue to have disappointing results.

EVER was written up on VIC as a short by aviclara in 2020 when it was trading at $34.44. In addition to being a great call, aviclara’s write-up has a well researched description of how the business works. In short, it’s a lead generation company in a highly competitive space that has no moat and relies on questionable tactics.

In the past three years, the company hasn’t had a single quarter of positive earnings, and in 2022 reported its first year over year decline in revenue. Fourth quarter 2022 revenue was just $88 million, down 13% from the prior year. Comments from its largest customer, Progressive, suggests that a further decline in revenue may be on the horizon.

Everquote derives 80% of its revenues from referrals for auto insurance. The auto insurance industry is currently in a “hard” market. Increases in the cost of repairs and delays caused by parts shortages have outpaced carriers’ ability to raise premiums. Hurricane Ian also put a dent in carriers profitability. One response, which was clearly enunciated on Progressive’s first quarter conference call, is to cut back on advertising and other customer acquisition costs. While Progressive didn’t specifically comment on its relationship with Everquote, this is unlikely to be a positive.

We are all familiar with Flo from Progressive, the GEICO gecko, the Liberty Mutual emu, and ads from State Farm and other insurance companies. All of these companies have spent a ton of money building their brands in a largely undifferentiated marketplace. All of these companies have websites that consumers can use to get insurance quotes. Independent agents, who represent multiple insurers will also compare quotes for consumers. The value added by Everquote in theory is that they can do a better job for the consumer than an independent agent. In practice, Everquote often sells a consumer’s insurance quote request to several agents, who then contact the consumer to sell an insurance policy.

Everquote has also entered the medical insurance marketplace. Unlike the auto policy business in which Everquote sells leads and recognizes revenue as received, in the medical space EVER recognizes revenue based on the estimated lifetime value of the commissions it expects to receive based on various assumptions about policy renewals. While revenue is recognized immediately, the future commissions receivable are recorded on the balance sheet. Between 2021 and 2022, the future commissions receivable increased from $22.7 million to $46.9 million. This $26.7 million of revenue recognized in 2022 was approximately 6% of EVER’s 2022 revenue.

EVER has 32.5 million shares outstanding including 6.1 million super voting Class B shares. Insiders control 75% of the voting power. 

EVER had $30.8 million of cash on the balance sheet at the end of December. $15 million came from the private placement of stock in early 2022 to an affiliate of the company’s founder. Over the past 12 months, the company’s current burn rate (cash from operations and capital expenditures was roughly $20 million. 

Catalyst

EVER is scheduled to report first quarter results on May 8^th. The company is targeting revenue between $101 and $105 million, and positive adjusted EBITDA. Given the hard market in the insurance business, there is good reason for disappointing results.

Longer term, the lack of growth and profitability in a business positioned as a tech leader is likely to lead to a continued downward spiral.