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Home improvement in Australia is undergoing a significant transformation, particularly within the tradies industry, which has been one of the last to embrace digitisation.
A notable player in this evolution is Hipages Group (ASX:HPG), a company that’s been around for 20 years and went public on the ASX in 2020.
Hipages aims to make it simple for tradies and homeowners to connect. As such, the company has focused on creating and maintaining a user-friendly platform, which features an AI assistant and allows tradies to manage tasks, order supplies, and communicate with clients.
Speaking with Stockhead, Roby Sharon-Zipser, CEO and founder of Hipages, noted how the company’s journey began in a rather personal way.
“Imagine a guy – me – in his dilapidated apartment, drilling holes in the ground and realising that he’s totally incompetent at anything handy around the house,” he said.
The motivation for Sharon-Zipser was to find an easy way to get someone to do this work – “to know that they’re good, to know that they’re licensed, and to get their profile”.
This desire to connect with reliable tradespeople led to the creation of a directory that has since evolved into a comprehensive marketplace.
The platform’s algorithm now matches job postings with suitable tradies, guiding them through scheduling, quoting, and payments. It also allows homeowners to explore home improvement ideas and receive cost estimates.
For two decades, Hipages has transitioned from a simple directory to becoming the largest platform for trade services in Australia and New Zealand – in Australia alone, its subscription base of tradies has grown to 33,100.
And the rate of successful connections between tradies and homeowners is at 86%, indicating that a significant majority of homeowners who posted jobs are able to find suitable tradespeople for their needs.
“We pivoted the business a number of times from a directory to a marketplace, to now a platform for the Australian and New Zealand markets,” said Sharon-Zipser.
The company recently shifted its focus to a two-pillar platform strategy.
The first focuses on expanding its marketplace, connecting more tradespeople with homeowners to increase job matching and create more opportunities.
The second pillar is all about improving the homeowner platform, focusing on building trust with homeowners by creating better technology and services that encourage them to come back to the platform.
The company launched its Tradiecore platform earlier this year, an advanced app for tradies that includes tools for job management, scheduling, and invoicing, which help streamline their operations.
Together, these strategies aim to solidify Hipages’ position in Australia’s home improvement market.
“Imagine a tradie or business coming to Hipages and saying, ‘I need work and I need a presence online.’ We can help you with that,” Sharon-Zipser said, adding:
“In our product vision roadmap, we see an opportunity to support trades with lending, procurement, insurance.”
A key component of Hipages’ strategy is its new subscription model.
Sharon-Zipser explained that tradies pay the company subscription fee to get access to leads but noted that this isn’t a one-size-fits-all approach.
“Not all trades need to market themselves,” he explained, as many have existing customer bases. For example, an electrician might join the platform for a monthly fee and receive a certain amount of credit for leads.
“If they use up their leads, they can upgrade their subscription or buy a booster,” Sharon-Zipser explained, likening it to a mobile phone plan where users can purchase additional data.
In New Zealand, this subscription model launched in June, and all existing tradies will transition during FY25 to align with the Hipages Australia model, moving away from the success fee business approach.
The Australian trades industry is worth over $141 billion, with the Hipages business model focusing on those tradies who service the residential homeowner segment – valued currently at $112.4 billion.
That homeowner segment represents over 48% of the overall residential tradies market. Currently, Hipages is only capturing only 11% of that market, and Sharon-Zipser has ambitious plans to expand.
“We’re broadening our product suite to be more relevant for all trades.”
The company’s financial performance in FY24 was solid, achieving 13% growth in total revenue to $75.8m on the back of record tradies demand. Around of $72m of that revenue is recurring.
The company also generated positive free cash flow and ended the year with no debt.
“One of the key things to call out here is that we generated a true free cash flow metric. So that’s a major inflection point for the business.
“Every dollar of additional revenue that the business puts in, it’s giving off about 40% free cash flow. That’s a really good place to be. It’s a massive action point for the business.”
But as the market evolves, Sharon-Zipser said competition is inevitable. He noted, however, that “60% of work is generated by word of mouth”, adding that it’s “where the big opportunity lies for us”.
Beyond word of mouth, homeowners often turn to platforms like Google and social media to find services, making the online marketplace segment critical.
Sharon-Zipser believes the substantial scale and brand recognition that Hipages has built over the past 20 years of investment are now paying off.
“We’re the largest marketplace for leads in the home improvement space, and we’re the most trusted marketplace to go to get work.”
With a share price that has risen by over 70% in the past 12 months, investors are starting to pay attention to the stock.
In FY25, Hipages said its aim is to solidify its position in the tradie ecosystem after the successful launch of the Tradiecore platform earlier this year.
Sharon-Zipser said the company is working towards achieving the ‘Rule of 40’, a key metric in the tech industry, which combines revenue growth with free cash flow generation.
In finance, the Rule of 40 states that the sum of a company’s revenue growth rate and its free cash flow margin should equal or exceed 40%.
For example, if a company has a revenue growth rate of 25% and a free cash flow margin of 20%, the total is 45%, which exceeds the Rule of 40, indicating a healthy balance between growth and profitability.
“We’re steadily making progress in the Rule of 40,” said Sharon-Zipser.
“I think we’re at around 17% right now, and we’re aiming to get to about 20-ish percent this year, and progressively moving up to 30% and then eventually, in a few years, get to the Rule of 40.
“This is effectively what they would call the Goldilocks zone to be in as a platform, as a software technology company.”
Sharon-Zipser added that the company’s ambition is to be the largest platform for the trade services industry in Australia.
“We are well funded, with over $21 million in liquidity and no debt, positioning us to execute our strategic plans confidently and continue to deliver strong results for our shareholders.”
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
Hipages is part-owned by News Corporation, publisher of Stockhead.
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