Does Care.com's Business Model Work?
Care.com is operates a dynamic website that acts as a portal for service providers --like pet sitters and babysitters-- to find customers. The company went public on Jan. 25, with shares rising nearly 43% in its first day of trading as a public company on the New York Stock Exchange.
The offering gives Care.com a market capitalization of $740 million at the moment of writing. However, this may be just the beginning for Care.com, which has bigger ambitions. The company's CEO and Founder, Sheila Marcelo, plans to use some of the new capital raised to invest in marketing and strategic acquisitions, aimed at broadening Care.com's audience. But what makes Care.com different from other online marketplaces, such as Yelp and Angie's List ?
Source: Care.com Corporate Website
The Amazon of caregiving services
Care.com is the world's largest online marketplace for finding family care, with more than 9.7 million members over 16 countries.
Since the marketplace went online in 2007, the company has patiently built a huge database of 4.5 million caregivers, becoming a trusted brand in the field. In recent years, the company has expanded its marketplace beyond caregivers, by introducing care-related businesses, such as nanny agencies, day care centers, and pet care services. In this way, the company aims in the long run to become the Amazon of all care-related services.
Note that the company has experienced rapid growth, both in terms of revenue and members. It increased its user base from 1.9 million in September 2010, to 9.1 million three years later. Likewise, revenue grew from $12.9 million in 2010, to $59 million in the nine months ending in September 2013.
Care.com benefits from scale advantages and network effects due to its more than 9.7 million engaged members, who, on average, posted a new job every 30 seconds, and applied for a new job every two seconds in 2013. It also benefits from inexpensive worth-of-mouth marketing, as since the launch of the marketplace in 2008, over half a million families have found caregivers through Care.com.
Notice that unlike Yelp, which generates the majority of its revenue from advertising, Care.com earns most of its revenue through subscription fees by care-seekers. In this way, the company avoids fierce competition in the market for digital ads.
More importantly, the company wants to go beyond "just matching," and it now provides online payroll and tax product for families that employ a household worker. Care.com also provides convenient payment products that enable families to make electronic payments to caregivers from a mobile device. In this way, Care.com tries to maintain long-term business relationships with its recurring users.
A great stock to own in an aging society
Perhaps the most attractive part of Care.com's story is the company's market opportunity. Unlike Angie's List or Yelp --which provide reviews of any local businesses, such as plumbers, painters, and dentists-- Care.com specializes only in the promising market for care, which is large and highly fragmented.
For example, Care.com's addressable market in the U.S. comprises 42 million households. Moreover, $243 billion was spent in the U.S. on care in 2012, according to IBIS Research. This figure is set to continue increasing in the next decades, as the percentage of peoples ages 65 and over is expected to increase by roughly 30% between 2012 and 2020, according to Business Monitor International.
Final Foolish takeaway
With more than 9.7 million members over 16 countries, Care.com has successfully built an online matching platform in the promising market for care. After a successful IPO, the company is now trading at roughly 12 times annual sales, well below Yelp's 25.5 price-to-sales ratio, but above Angie's List. As Care.com continues expanding its user growth and adding new features to its marketplace, the company will likely experience steady top line improvement in the next years, which will be partially supported by demographic trends favorable to the company, such as aging.
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The article Does Care.com's Business Model Work? originally appeared on Fool.com.Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Yelp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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