Prologue
Hipages is an online marketplace where home owners can advertise jobs they need done and then tradies can provide quotes. Tradies, rather than the home owners, are Hipages’ customers as tradies pay a subscription model to use the platform.
Hipages might be one of the lowest quality marketplace companies around:
- Once a job is complete, home owners could choose to build a relationship with their tradie outside of Hipages, circumventing the platform.
- Home owners can easily shop around on the various other classified sites (Yellow Pages, Oneflare/Airtasker, search engines etc).
- Tradies also could shop around on the same other platforms.
- Customers may simply choose to not go ahead with a transaction if it is not urgent repairs.
Because of this, network effects do not really come into play like with other platforms such as realestate.com.au.
Chapter 1: The Changing Business Model
Management have long acknowledged the above problem with their business model. By the end of FY25 they have laid the foundations for a change to a new, hopefully more profitable, business model.
- They have transitioned from a commissioned-based model to a subscription model. 100% of their NZ tradies are now on the subscription model generating $1,190 average revenue per user (ARPU). As of their FY25 report, 81% of Australian tradies were on the new platform, generating $2,381 ARPU.
- In FY24 they unified their marketplace and their ‘Tradiecore’ SaaS product into the ‘Single Tradie Platform’ (STP). Tradiecore was a job management and admin software that tradies could integrate into their accounting systems and manage their job leads. Hipages hopes that this combined STP will become a ‘mini-ERP’ for tradies (their words not mine).
Overall, the change in the subscription model has resulted in the business generating much better free cash flow from a step change in the ARPU.
The fact they seem to have experienced minimal churn is a good sign that tradies are getting value out of the platform and that Hipages has at least some pricing power.
The strategy is to use this newfound FCF to build out the SaaS components and features to make the tradies even stickier, add incremental ARPU and attract more tradies to the platform.
Chapter 2: The Outlook
Management have provided guidance for FY26 of:
- Revenue growth of 10% - 12%;
- EBITDA margin of 24%-26% (FY25:24%); and
- FCF of $8m - $10m (FY25: $5.6m).
When the remaining 19% of Australian tradies transfer over to the new pricing, this should add $1.43m of revenue alone (+1.72%).
They have CAGR of 12% ARPU growth over the last four years for the Australian business. They can easily hit revenue guidance if they achieve ARPU growth of 7.8% over the new pricing model for the Australian business alone. This is assuming the number of tradies remains constant and does not rely upon growth in the NZ business.
Given they have achieved revenue CAGR of 10.5% over the last four years, this guidance seems quite reasonable and very achievable.
Chapter 3: The Valuation
The current share price of $1.28 implies an EV/FCF ratio of 28.5, and a P/E of 77. This feels quite high, all things considered.
Assuming they hit the $8m of FCF as per guidance with an assumed growth of FCF of 9%, I get a valuation of $1.16 per share.
Epilogue
What I like:
- Consistent revenue and ARPU growth since IPO. However, this is only a short history of 5 years.
- Founder-led business with management KPIs are aligned to revenue growth and growing the tradie base which is much needed for the long-term success of this company.
What I don’t like:
- They capitalise ~75% of their software development which is why FCF is a better metric of profitability. I would prefer to see them expense more moving forward given they have merged the two platforms.
- Their strategy may not provide much of a moat, if at all. Competitors will be able to replicate relatively easily.
- Management have a very small share in ownership. The Founder/MD holds all the shares owned by management, while the remaining board members have a tiny fraction of shares on issue.
Overall, the company seems like a solid business. It is growing and the strategy seems sound to address the key problems of the business.
If I was to ask myself, is this the best idea I could do with my money? Probably not. I think that I would wait to buy this on a pull back, but I see the vision.