ANGI’s Plumber Problem

Why the average of age of a plumber is an issue for the company

“Service professional capacity is once again our biggest challenge…” IAC Investor Letter

In 2018, while working for a startup that developed an automatic water shutoff and leak detection device, I considered shorting ANGI, but was so busy and distracted, I forgot. It would have been a lucrative trade (I have no position either way in the company right now). The stock has since rebounded as many construction projects and work has been put on hold and the constraint on skilled home service professionals has eased. But once the economy rebounds, or a significant infrastructure stimulus package passes, watch out, ANGI’s woes could multiply.

What Is ANGI HomeServices?

ANGI Homeservices (NASDAQ: ANGI) is a digital marketplace that connects homeowners with home service providers such as plumbers and electricians. Recently, the stock has been on a tear, increasing over three times in price since the market low in April on optimism that the company is finally seeing traction in their business model. However, if you zoom out, the stock is basically flat over the past nine years, despite a booming housing and home improvement market. Consider that Home Depot (NYSE: HD) is up approximately 500% during the same time.

So, what has been weighing on ANGI? The problem for ANGI is not demand. Homeowners would love a solution that makes home maintenance easier and simpler. The problem is supply, specifically a shortage of electricians, plumbers and other skilled labor. And that shortage of skilled labor is getting much worse with baby boomers retiring.

Shortage of Plumbers

I was one of the first investors in the above-mentioned company, Flo Technologies, which developed an automatic water shutoff and leak detection device called the Flo device. Using machine learning, it can detect leaks as small as one drop per minute and automatically shut off your water (Flo Technologies ). In 2018, I became the Chief Strategy Officer, so that I could help the founder and CEO, Gabe Halimi, figure out how to grow the company and launch the Flo device.

One of the biggest hurdles we faced was the shortage of plumbers. Our research showed that the average age of a plumber is approximately 56 years old and in the next five years, an estimated 25% of all licensed plumbers will retire. It is a very physical job and age becomes an issue.

In the course of my time at Flo, I met with or interacted with hundreds of plumbing companies, and it was shocking how hard it was to get a plumber to do one hour of work on the “clean side” of plumbing (no sewers or toilets involved). Plumbers were simply too busy and stopping the work they already had in the pipeline was costly and not worth it to them.

Flo found success around the problem by developing insurance company relationships and launching in Home Depot. This led to an investment and then subsequent takeover of Flo by Moen, which is owned by Fortune Brands (NYSE: FBHS).

But the shortage of plumbers remains, and it is a problem for ANGI, because plumbers don’t need the business that ANGI is offering them. Plumbers are not price takers; they are price makers. Plumbers who are responding to ANGI leads are either brand new and need to build a book of business or aren’t very good.

Another issue I learned about while at Flo is that many large plumbing companies have quotas for their field service members. This means, the minute a plumber walks into a house, they are calculating how much they can earn while in the house and how to meet their quota. These plumbing companies are using ANGI leads to take advantage of consumers, by getting their foot in the door. This is not a wonderful value proposition for consumers and probably why ANGI’s network has struggled to reach escape velocity. Imagine the woes Uber (NASDAQ: UBER) would have if it struggled to find drivers.

If ANGI can ever figure out how to increase supply, the stock would be an absolute grand slam. But how do you increase the supply of plumbers when it takes four to five years apprenticeship and years of night school two nights every week to become a licensed plumber?

And it is not just plumbers who are in short supply. An estimated 10,000 electricians are currently retiring every year while only 7000 electricians are entering the industry.

Until ANGI figures out how to dramatically increase the supply of plumbers, electricians and other skilled labor to its platform, it will struggle to fill demand.

But, are there any publicly traded companies that might benefit from the shortage of skilled labor? Stay tuned for an answer in the next newsletter…