Should you buy ROVR stock? 2-minute analysis

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Founded in 2011, Rover operates an online platform that allows providers to offer boarding, pet sitting, and dog walking services. Think Uber but for pets. This company came to the public markets last year via a SPAC. Shares fell heavily following the merger but are currently 60% above their lows.

Right now, Rover has a market cap of $1 billion. Net cash of $235 million gives an enterprise value of $754 million dollars

Based on full year guidance, revenue this year should come in between 171 to 173 million and adjusted EBITDA is expected to come in between 16-18 million. That means Rover currently trades at roughly 4.3 times revenue and over 40 times adjusted ebitda.

That’s steep but pets are big business in America and Rover has been growing nicely. Full year revenue is expected to increase 57% this year and average booking value is up roughly 40%..

Also, Rover’s platform business model means it doesn't need to spend much to generate incremental profits.

But, Rover’s platform model suffers when customers go direct to providers instead of using the platform. And that seems to be what’s happening.

Figures from the last two years suggest the average user is making only one booking a quarter. And the company said that net retention rate was around 80%. Both of these metrics are particularly low and suggest a lack of brand loyalty.

Another key issue is that Rover is heavily exposed to travel. According to management, 85 to 87 percent of the company’s gross booking value is related to non-business travel. In other words, pet owners most often use Rover when they go on trips.

So the dramatic increase in revenue and average booking value this year is largely thanks to the rebound in travel, since the pandemic.

That rebound is likely to slow down in the coming year. But at 40x EBITDA and 4 times revenue, Rover stock is still pricing in significant growth.

A risk to shorting Rover is that the company is a potential takeover target for a larger business like Petco or Chewy. But whatever the chances of that, Rover stock looks expensive thats why i give it a bearish rating and I may start a short position on Monday morning. But these are my personal opinions, not financial advice.