Care.com’s Recent IPO

According to an IBIS research released in 2012, nearly $243 billion was being spent in the US on care services such as day care, in-home care providers, housekeepers, nursing care facilities, tutoring and pet care. The care services market is highly fragmented across the globe. Recently listed Waltham-based Care.com is one company which has successfully managed to consolidate these services under their portal.

Care.com’s Offerings
Care.com (NYSE:CRCM) was founded in 2007 by Sheila Lirio Marcelo who was struggling to find quality care services for her needs and wanted to transform the way families and businesses around the world address their care needs. Since then, they have grown with the mission of providing services that will improve the lives of care seekers and care providers by granting them the tools and information to make informed decisions in finding and managing quality care for their children, parents, pets, and other loved ones. Care helps users connect with a database of pre-screened profiles of babysitters, nannies, tutors, housekeepers, and senior caregivers, both locally and nationally.

Besides providing access to a database of caregivers, Care is also building the largest global destination for quality caregivers to find fulfilling employment and career opportunities. Today, they are the world’s largest online marketplace for finding and managing family care, with more than 9.7 million members, spanning 16 countries. On average, four out of five families subscribing to their site find their caregiver on Care.com, and a new job is posted every 30 seconds in the US. As part of their international expansion, in 2012, they launched their services in the UK, Canada, and Europe.

Some of the additional services offered by Care includes a consumer payments solution that lets families pay their caregiver electronically and subscribe for tax preparation services for their caretaker. Care believes that by offering these services, they are able to increase the value associated with each of their members. Care also has an organization-focused product that features payment offerings, back-up care services, and care concierge services. Finally, they act as a marketing platform for care-related businesses such as day care centers, nanny agencies, and home care agencies.

Care.com’s Financials
Care’s member base has grown rapidly over the past years, reporting a 70% annualized growth rate over the period 2010 through 2013. As of September end 2013, they had over 9.1 million members. Care earns most of their revenues through subscription fees charged to their care-seekers. Basic membership to the site is free but additional features such as unlimited access to all providers and free background checks come at a price. Subscription plans start at $39 for a month’s service and go up to $149 for a year’s subscription.

Over the period 2010 through 2012, revenues have grown 94% annually from $12.9 million to $48.5 million with losses increasing from $3.5 million to $20.4 million during the same period. For the nine months ended September last year, revenues grew 81% to $59.0 million. Care recently reported their fourth quarter results and saw revenues grow 41% to $22.5 million and losses increasing from $2.5 million a year ago to $3.6 million. They ended the last fiscal with revenues growing 68% to $81.5 million and losses increasing to $28.3 million. At the end of last year, Care had a total of 9.7 million members.

They expect to end the current quarter with revenues of $23.8 million-$24.8 million and an adjusted loss of $10.5 million-$9.5 million. For the year, Care is projecting revenues of $108 million-$111 million and an adjusted EBITDA of ($23.0) million-($20.0) million.

This January, Care went public on the NYSE and sold 5.35 million shares at $17 apiece. Prior to that, they had raised $111 million in venture funding from several firms including New Enterprise Associates, Matrix Partners, and Trinity Ventures. Care plans to use the new funds to expand their network via corporate and government partnerships; customized senior care service offerings; and by expanding into new verticals such as pet care, tutoring, and housekeeping.

Care’s stock is trading at $17.92 with a market capitalization of $555 million. It touched a high of $29.25 early last month.

Care plays in the same general space as Angie’s List, another company that has had a hard time in the public market. Customer acquisition costs are extremely high, churn is also extremely high. Running a profitable business with those dynamics won’t be that easy. Investors should use the trajectory of Angie’s List as a proxy to understand the business dynamics of Care.com.