ASX BRIEFS

HIPAGES GROUP HOLDINGS LTD (HPG) - The Digital Transformation of Trade Services and Innovation with CEO and Co-founder Roby Sharon-Zipser

• Andrew Musgrave

Share episode

Send us a text

Are you curious about how technology is changing the way homeowners find tradies? In this engaging episode of ASX Briefs, Roby Sharon-Zipser, CEO and co-founder of hipages, unveils the innovative strategies behind Australia’s leading online platform connecting tradies with homeowners. hipages stands at the forefront of digital transformation. Roby explains the powerful shift towards a unified platform that helps trades manage their businesses efficiently, combining job leads and management into a single application.

Roby discusses some of the significant growth metrics, including a 10% increase in operating revenue and a leap in monthly recurring revenue (MRR). These results highlight the successful transition from a traditional commission model to a subscription-based approach, establishing a more predictable revenue stream while providing greater value to trades. By enhancing the user experience and ensuring that trades receive tailored support, hipages has captured the attention of the market.

Tune in to gain a deeper understanding of this thriving marketplace and discover how technology is making home renovations easier and more accessible. Join us and don’t forget to subscribe, share, and leave your thoughts!

Andrew Musgrave Host

Welcome back to ASX Briefs, the podcast where we dive into the latest insights from Australia's top listed companies. And joining me today is Roby Sharon-Zipser, the CEO and co-founder of hipages Group Holdings. hipages Group is the leading online platform connecting tradies with homeowners across Australia and New Zealand. The company has been at the forefront of digital transformation in the tradie industry, offering innovative solutions to streamline job management and boost business efficiency. Roby, thanks for joining me today and welcome to the ASX Briefs podcast. 

Roby Sharon-Zipser Guest

Thank you, Andrew. Thanks for having me on the podcast. 

Andrew Musgrave Host

Now, Roby, for listeners that may be unfamiliar with hipages, can you just provide a brief overview of the company? 

Roby Sharon-Zipser Guest

So hipages is a marketplace and platform business. So, what does that mean? So, what we do is we've been connecting homeowners with trades licensed check trades for about 20 plus years. It's the largest marketplace for connecting to trade services in Australia. We have in Australia 33,000. I forgot to mention we also are in New Zealand, so we have about 3,000 trade businesses in New Zealand as well. So, if you need a plumber or a licensed electrician, we'll connect you with up to three of those trades at speed. hipages also has invested quite a lot in the last couple of years in building software for the trade businesses. So, we help trades with their scheduling, quoting, invoicing, integrating into accounting software and processing payments. And that's all now in one single app, which I hope to talk to in a few questions time. 

Andrew Musgrave Host

We certainly will. Now. hipages reported a 10% increase in operating revenue and a 14% growth in MRR. So, what are the key drivers behind this sustained growth? 

Roby Sharon-Zipser Guest

Yes, so the operating revenue is a little lower than where we wanted it to be. But with that MRR, which is the last sort of position at the end of December the monthly recurring revenue, that's going to see an acceleration of operating revenue in the second half of the financial year and a lead up to a bigger second half. The drivers behind that is that all our customers are now migrated onto a hipages tradie core solution. So, our trades pay a subscription to have access to job leads and also job management, which is the software component. So, all our customers are in that single technology now. That's a big accomplishment over the last half. And now what we're doing is we're actually charging a little bit more for all of those extra value-added services within the subscription. So, there's some higher subscription price points coming through. We're also going to continuously add more features to that product and also the way the subscription is consumed and why customers upgrade is accelerating as well. 

Andrew Musgrave Host

Okay, and if you look at that platform evolution, the migration of all Australian tradies to the single tradie platform is a major milestone. So, what improvements has this brought and how has this transition impacted user engagement and retention? 

Roby Sharon-Zipser Guest

So, what we've seen in the business is that we had two separate applications. If you're a trade business, when you used hipages so we actually have we had three applications. So, one was the homeowner application where if you wanted to post a job, you would go in and we'd ask you a bunch of questions and that still has. That's still the same and that's that works perfectly fine and we always upgrade that. But if you're a trade, we actually historically, prior to April of last year, gave you two applications to work with. One was a lead management and another one was a job management app. So, you had two apps on your phone. Now it's hard enough to use one app. To give two apps to a customer, that's challenging. 

So we made a decision to merge the two business applications and we call that now hipages Trading Core and all our new customers from April started using hipages Trading Core. And as of September of last year, we made a big effort to migrate all of the legacy customers that were using old applications all into one single application and the beauty of that is that when you accept a job or a job lead through hipages, that job lead is then immediately married up to the job management. So, there's a natural workflow, the end-to-end workflow that a trade would go through. So, accept the lead, communicate with the homeowner in the application through a messaging system, set an appointment, go to that appointment, do a quote, complete the quote, do an invoice or issue an invoice, process the payment and sync that with your accounting software is now all done in a single application. Now the strategy of the business started already a few years ago where we put all our customers onto a subscription product. That subscription product was fully rolled out in 30 June 22 and we went to start building more software, creating a system of record for the trades. 

And now what we're trying to do is have all our trades use the software as an end-to-end experience and the reason behind that is that will help with retention. So, as an advertising solution, the retention is relatively in the 58% range. That's what we published in our reports. That seems like high churn, but it's quite normal if you think about it as an advertising product. You get what you need and then you leave. A bit like media consumption. It's not software, but software has the best retention rates out of all subscription businesses. Very rarely do customers churn when they use software, and the reason is that software is the system of record for those businesses, so all the history of their accounts and their interactions with their customers is recorded in that system of record. And so hipages is moving more and more into a software world for trades to help trades better manage and run their businesses. 

Andrew Musgrave Host

You've also fully implemented a subscription model in New Zealand, so what impact has this had on your revenue visibility and overall market penetration? 

Roby Sharon-Zipser Guest

Yeah, so our New Zealand business for many years literally 15 years ran a commission model off the back of being connected with trades homeowners connected with trades, similarly as they do in Australia. It's even more curated so it's closer to the outcome of the job in the New Zealand business. So, it's not just a lead, it's actually the homeowners already pre-selected in that engine the trade. So, it's even more refined. And the way they monetized that transaction was when the job was done. They found out the value of the work and then issued a percentage on that work, which sounds fair. But naturally what happens with high value work and low repetition so less loyalty and high personalization the marketplace gets avoided. So, things go off the platform. And so, the business in New Zealand was not able to monetize fully the value of the work that it was creating. 

And in those environments the next best business model or commercial model to apply is a subscription model, as we've done in Australia. 

And so, what we've done is we've rolled out a 100% subscription model in our New Zealand business, similar to the Australian business, and what we've started to see is our average revenue per customer the ARPUs start to move up quite quickly because there's a better value exchange occurring, where the business, the marketplace in New Zealand, is being rewarded fairly for the value that it's providing to its customers. We did lose a few customers in New Zealand, but the way we counted customers in the past in New Zealand was different to the way we count now, which is every month a customer pays a bill, that's considered a paying customer, whereas in the past, if a customer paid a bill once every 12 months, that would have been a counted customer. So, it's not the same thing. So, the business is replicating exactly what we've done in Australia, where we started to see some material improvements in the average revenue per customer. And now that they're all on subscription, we can also replicate what we've done in Australia by introducing a platform solution where we'll start offering our customers in New Zealand software in the next 12 months. 

Andrew Musgrave Host

If we now look at AI and automation, which is affecting most businesses these days, you're rolling out an AI enhanced job matching algorithm, so can you share more about how the AI is shaping the future of hipages platform? 

Roby Sharon-Zipser Guest

Yeah, I mean, just like most CEOs, ai is a bit of an emotional roller coaster. You hear about it and then you start to think, oh okay, I better check this out, see what it's all about. And then you get into it, and you get super excited. And then you get overwhelmed and then you start developing a strategy for how you're going to apply AI. So, in the business, we are using it to do sentiment analysis with customers. We're using it for many, many aspects in the business, but one of the deep tech components is our matching algorithm. So how do we match trades to homeowners at speed? 

Now, that might sound simple at a headline level, but when you start unpacking it, it's super complicated, because there's something like 200 trade categories, probably about 30 primary trade categories, but underneath those primary categories you have thousands and thousands of subcategories, and you have something like 3,000 plus livable postcodes in Australia. So, when you think about the subcategories and the livable postcodes, you end up having millions and millions of micro marketplaces that you need to manage. And our algorithm did a good job of it, but it had limitations in terms of what it could do, in terms of taking into account the needs of all the customers, how fast they wanted responses. Oh, just before I go on, I should explain what do I mean by a subcategory. So plumbing is a parent category, and then block drain would be a subcategory, or hot water tank replacement would be a subcategory. 

So you can imagine, when you multiply out all the maths on that, you've got to have an algorithm that can match homeowners to trades really, really fast, so that the experience is good and meet all the customers' experiences, both the tradie customers, which is our supply side, and the homeowner customers, which is our demand side at speed, with a good experience.  

And to optimize the commercial model out of all of that, we've introduced machine learning so understand the behaviors of the micro markets, those millions of micro markets, and optimize all the outcomes for the homeowner, for the trade and for the hipages business to achieve commercial outcomes. So, the matching algorithm is now very AI enabled. We're rolling out more and more advances to optimize for all of those variables in those millions of marketplaces at real time, and so that's an example of how we're using AI, deep tech AI, within the business time, and so that's an example of how we're using AI, deep tech AI within the business
 
 Andrew Musgrave Host

And if we look at things at a more macro level, with marketplace activity at near record levels, how do you see demand and supply evolving in the tradie sector?
 
 Roby Sharon-Zipser Guest

So, it's an interesting environment. The Australian New Zealand markets have been in different stages, so New Zealand is now more buoyant and recovering quite nicely. I think they had a lot of pain in New Zealand with regards to quite high interest rates. The economy effectively was in recession and as soon as inflation came under control and interest rates dropped, the buoyancy in that market has really really lifted. High job flow, job demand flow so homeowners putting requests coming through nearly at record levels. And high still demand or supply, so trades wanting work. So that market is really firing. 

The Australian market's a little bit different. So, in Australia, because we haven't really gone as hard as other markets with interest rates, consumer sentiment, cost of living crisis we hear about it all the time the volume of demand so the jobs that are being posted is under quite a bit of pressure. We can see that in overall search volume at a macro level. So, we've had to invest more in our marketing and invest more in our creative and so we're driving record levels of connections, as you said, Andrew, but that's coming at a cost and a bit of work. So, we're trying to make sure the marketplace stays in balance in Australia but, having said that, we're seeing record numbers of trades registering to get work from our platform, and that also gives us some pricing power which we're leveraging, which is driving some of our growth. 

Andrew Musgrave Host

All right, and just to touch on the financials FY25 outlook, you've set a full year revenue target of circa 80 million, or just above, and anticipate an EBITDA margin expansion of 23% to 24%. So, what are the key initiatives that will help you achieve these targets? 

Roby Sharon-Zipser Guest

Okay. So just to be precise, we're very exact on a very tight range. We gave 83 to 84 million as the revenue guidance. We're pretty confident that we'll be able to deliver that, so that's fine. And then we went into the upper band of the EBITDA margin of 23 to 24%. Originally it was like 22 to 24. So, we've gone and targeted numbers that are higher in the 23 to 24 range and our free cashflow originally was four to six. We've gone into the higher range where we think we're going to generate more than five million in cash. So, five to six million in free cash flow. 

The business is doing really well, has a very healthy balance sheet, the ability for us to drive that is as I said. We've got higher subscription prices coming through to about half our customer base, actually over 50%. 52% of our customers still need sorry, 58% of our customers still need to roll onto the highest subscription prices over the course of this financial year. And we're doing a lot more optimization on our lead pricing through that matching algorithm that I mentioned earlier. And then also it's also a busy second half for us. Typically, we have higher tradie registrations and higher conversions of customers coming into the platform as they build up to get to the October busy period, wanting all that work. 

Andrew Musgrave Host

Well, Roby, just to wrap things up, what are some of the key messages you would like to leave with shareholders on how you'll perform over the next 12 months? 

Roby Sharon-Zipser Guest

Yeah, sure. So hipages has reached an inflection point in FY24, becoming cash flow positive properly cash flow positive for the first time, with a couple of million dollars of free cash flow. We'll be growing that quite materially in FY25, as we've indicated in our targets. The business has a very strong balance sheet. We're generating operating leverage as a company, we're managing our costs really well and our strategy is really clear and it's evolving nicely. We'll provide the market with more information on retention rates of customers that are using our platform solution when we do our full year results, and I look forward to updating the market at that stage. 

Andrew Musgrave Host

Well, Roby, it's been great to chat today to get an update on the company, and we look forward to further updates in the upcoming months. 

Roby Sharon-Zipser Guest

Awesome Thanks, Andrew. I appreciate your time. 

Andrew Musgrave Host

That concludes this episode of ASX Briefs. Don't forget to subscribe and we look forward to catching you on our next episode.