Hook / Thesis
EverQuote has quietly shifted from a growth-at-all-costs cadence to one where unit economics are improving materially. Across the first three quarters of fiscal 2025 the business grew revenue sequentially while holding cost of revenue almost flat, producing gross margins above 95% and operating income that moved from low-single-digits to double-digit percentage points of revenue. If management sustains that operating leverage into 2026, the share price — currently around $24 — can reasonably outperform as the market re-discovers earnings leverage.
This is a trade idea, not a long-term endorsement without monitoring: enter on strength in the low-$24s, keep a pragmatic stop under $22 and target 30/36 as milestones tied to margin confirmation and an improving multiple. The rationale: very high gross margins (marketplace model), sequential revenue recovery, and expanding operating margins driven by disciplined operating expense control.
What the company does and why it matters
EverQuote operates an online insurance marketplace that matches consumers to carriers and agents across auto, home and life insurance. The product is effectively a data-science-driven lead marketplace with the platform taking the lion's share of the value while bearing only modest variable cost to serve each lead. That setup explains the very low cost of revenue line and a high gross profit base — a classic platform/high-fixed-cost model where the width between gross profit and operating expenses is the lever for rapid EPS growth.
Why the market should care: platform businesses with >90% gross margins can compound shareholder value quickly if they stop overspending for growth and let fixed costs scale. EverQuote looks to be on that path: revenues across 2025 show sequential recovery while operating income rises faster than revenue, signalling improving efficiency and marketing ROI.
Key financial read-throughs
- Revenue trend (recent quarters): Q1 2025 revenue = $166.6M (filed 05/07/2025), Q2 2025 revenue = $156.6M (filed 08/05/2025), Q3 2025 revenue = $173.9M (filed 11/04/2025). The Q2->Q3 sequential change is roughly +11% and Q1->Q3 total growth is about +4.4%.
- Gross margin profile: In Q3 2025 cost of revenue was only $4.712M on $173.94M revenue, implying gross profit of $169.23M (gross margin >97%). That level of gross profitability is structural to the marketplace model.
- Operating leverage: Operating expenses in Q3 2025 were $151.688M producing operating income of $17.54M — an operating margin near 10.1% for the quarter. By comparison, operating income in Q1 2025 was $7.997M on $166.632M revenue (operating margin ~4.8%). That is a meaningful sequential expansion in operating profitability across 2025.
- Profitability and cash flow: Net income in Q3 2025 was $18.865M and diluted EPS was $0.50. Operating cash flow remains healthy: $19.77M in Q3 and two prior quarters of $25.30M (Q2) and $23.31M (Q1). The company is generating positive operating cash across the year.
- Balance sheet: As of the Q3 2025 filing (accepted 11/04/2025) total assets were $256.05M with liabilities of $81.12M and equity of ~$174.93M — a conservative balance sheet with limited leverage on the books.
Valuation framing
Public market snapshot: the stock trades around $24.12 (01/20/2026 last trade). The most recent diluted average share count reported in Q3 2025 is ~37.73M shares. Multiplying those gives an approximate market capitalization in the neighborhood of $910M (estimate: 37.73M * $24.12 ≈ $910M).
Revenue run-rate: the last three quarters sum to ~$497.2M (Q1–Q3 2025). Annualizing that three-quarter run at a 4/3 factor gives an indicative TTM revenue of roughly $660M–$670M. Using those round numbers generates a price-to-sales of ~1.3–1.4x — not expensive for a high-gross-margin marketplace business that is starting to show durable profitability.
On an earnings basis, the three-quarter net income run-rate annualized is roughly $55M (sum Q1–Q3 net income ≈ $41.6M, annualized ≈ $55M). That implies an annualized diluted EPS near $1.45–$1.50 and an approximate P/E around 16x at current prices. For a company moving from low single-digit operating margins toward mid-teens, a re-rating from the current P/E into the low-20s is plausible if margin expansion accelerates and management confirms guidance.
Important caveat: the market cap and TTM revenue here are estimates based on recent share counts and quarterly results; a complete valuation should use the company’s latest disclosure of outstanding shares and full-year revenue when available.
Catalysts (what will push the stock higher)
- Continued margin expansion in upcoming quarterly reports - operating income moving above 15% annually would materially change the earnings story.
- Sequential revenue growth sustained in Q4 2025 and early 2026, showing the marketplace can grow without re-levering CAC to prior levels.
- Any disclosure that cost of revenue stays minimal while advertising/marketing spends become more efficient (marketing ROI improvement).
- Upgrades from sell-side and broader investor recognition of the high gross-margin marketplace business model driving multiple expansion.
Trade idea - actionable plan
Structure: go long the stock with a two-part position:
- Entry band: buy into weakness or consolidation between $23.50 and $24.80. The stock is trading ~$24.12 (01/20/2026); this band gives room for small intraday volatility while sticking close to the current price.
- Initial stop-loss: $21.50. That is roughly a 10-12% downside from the top of the entry band and sits below several recent support levels seen across late-2025 price action. If price breaks materially below $21.50 it suggests either margin momentum has broken or the broader market is re-pricing risk in the group.
- Targets: take partial profits at $30 (near-term, about +25% from entry) and add or take more at $36 (mid-term, about +50%). These targets correspond to multiple expansion as operating margins prove durable and revenue growth resumes more consistently.
- Position sizing & risk: limit initial position to an amount where a stop at $21.50 implies a maximum portfolio loss of 1-2% (risk management discipline). If margins and guidance improve materially, add on confirmation (e.g., operating margin beat and raised guidance).
Risks & counterarguments
At least four meaningful risks could derail the thesis:
- Demand or pricing shock in the core insurance verticals: if carriers pull back marketing spend into EverQuote, revenue growth could stall and the high gross profit cushion would be insufficient to offset falling top-line.
- Marketing efficiency reversal: the margin story relies on converting marketing dollars to higher-quality leads at improved ROI. If CAC rises or conversion rates fall, operating margins could compress again.
- Competition and disintermediation: larger advertising channels or direct-to-consumer programs from carriers could undercut EverQuote’s lead pricing or take share, pressuring both revenue and pricing power.
- Execution risk on cost control: operating expense discipline must continue. The company’s other operating expenses remain large in absolute terms (~$144M+ quarters), and small missteps or investments could wipe out incremental operating income gains.
Counterargument: a skeptic might say the stock is a value trap — high gross margins are fine on paper, but if the business cannot scale revenue faster than competitors poach leads or if unit economics deteriorate, the apparent margin expansion could reverse. That is reasonable. The trade outlined above is contingent on visible, repeatable margin improvements in forthcoming quarterly prints; absent that, the stop-loss discipline protects capital.
Conclusion - stance and what would change my mind
Stance: Tactical long. EverQuote looks like a company transitioning to sustainable profitability: revenue recovery, extremely high gross margins, and improving operating income across 2025 make a near-term re-rating plausible. The stock is attractive at ~1.3–1.4x estimated sales and ~16x annualized earnings given the earnings leverage available if management keeps costs in check.
What would make me change my mind:
- If Q4 2025 (or the next reported quarter) shows a reversal in operating income or a material increase in cost of revenue or CAC metrics, I would cut exposure immediately.
- If revenues decline sequentially while operating expenses remain elevated, that would be a red flag that the company is back to growth-at-all-costs without the margin benefit.
- Alternatively, if the company issues new information showing durable non-marketing headwinds (loss of large customers or platform outages) I would re-evaluate the thesis.
Disclosure: This is a trade idea for educational purposes and not personalized investment advice. I do not know your financial situation or risk tolerance. Position sizing, stops and targets should be adapted to your portfolio and risk rules.
Data points referenced are from the company's quarterly filings through 11/04/2025 and market snapshot as of 01/20/2026.