EverQuote's Growth Is No Fluke

Summary

• In Q3, EverQuote shocked investors when it suddenly accelerated its revenue growth to 61% y/y.
• In releasing its Q4 results, EverQuote shocked and delighted investors again when it showed further acceleration to an 85% y/y growth rate.
• Viewed from this lens, the company's FY20 guidance calling for 27-31% y/y growth is heavily conservative and leaves plenty of room for upside.
• EverQuote has also made use of its tremendous growth to drive notable improvements in adjusted EBITDA.

Over the past year, EverQuote (NASDAQ:EVER) has transformed from a sleepy small-cap IPO that no one has ever heard of to an explosive stock that has seen its share price grow by nearly 10x over the past year. The question for investors following EverQuote now is: is EverQuote simply a gimmicky, speculative stock, or is there real fundamental strength behind its phenomenal stock rise?

EverQuote just reported fourth-quarter results, which represents the strongest growth it's seen on record. Yet investors sent shares down modestly after the earnings release, signaling that investors are skeptical about the future - especially EverQuote's conservative fiscal 2020 guidance.

Let's cut to the chase: in my view, there's plenty of upside left for EverQuote. In my view, the bullish case for this stock lies on the following drivers:

• Huge potential for disruption in the insurance space. EverQuote is one of the only publicly traded stocks in the so-called "InsurTech" space, which is among the last bastions of industries that have yet to be radically transformed by technology and software. Right now, EverQuote's technology helps consumers sift through the mind-boggling number of options in getting insurance quotes.
• Growth in new categories. EverQuote's bread-and-butter is automotive insurance, but its recent expansion into home and life has been extremely lucrative, seeing revenue growth of 130% y/y in Q4. The number of categories EverQuote could enter is endless, and provides plenty of head room for growth.
• Benefiting from economies of scale. As a web business, EverQuote benefits from high >90% gross margins. As its scale has grown, it has succeeded in transforming losses into profitability, at least on an adjusted EBITDA basis. Recent trends suggest EverQuote may hit GAAP profitability as soon as next year, which is a major distinguisher for a recent IPO.
• Undemanding valuation. Yes, EverQuote's

Analyst’s Disclosure:I am/we are long EVER. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.