hipages Group Holdings: Navigating Margin Compression Amid High-Growth Ambitions

In the ever-evolving landscape of digital marketplaces, hipages Group Holdings (ASX: HPG) stands at a crossroads. The company's recent earnings report reveals a mixed bag: while revenue growth and capital efficiency have improved, net profit margins have contracted, and earnings per share (EPS) have declined. The question for investors is whether these near-term headwinds—coupled with a valuation that appears stretched relative to earnings—still justify the company's ambitious growth trajectory.

The Earnings Deterioration: A Temporary Setback or Structural Shift?

Hipages reported a 2.9% net profit margin in Q2 2025, down from 4.7% in prior years. This compression reflects increased operational costs, including investments in its Tradiecore SaaS platform and geographic expansion into New Zealand. However, the company's Return on Capital Employed (ROCE) has surged to 23.8%, up from -14.1% in 2020, signaling disciplined cost management and a debt-free balance sheet bolstered by AU$27.1 million in cash.

The EPS decline—from AU$0.027 in FY2024 to AU$0.018 in FY2025—hides a broader narrative. Over the past five years, hipages has averaged 56.1% annual earnings growth, driven by its pivot to a SaaS model and expanding market share in the Australian home services sector. The current margin pressures appear to be a function of strategic reinvestment rather than operational failure.

Valuation Metrics: A Tale of Two Multiples

Hipages trades at a P/E ratio of 72.4x, far exceeding the ASX average of 23.7x and even outpacing peers like Airtasker (ASX: ART), which trades at a more modest 34.2x. This premium suggests the market is pricing in significant future growth. Yet, the company's EV/Revenue of 1.9x and EV/EBITDA of 8.1x are more conservative, aligning with high-growth SaaS benchmarks.

A discounted cash flow (DCF) model estimates hipages' intrinsic value at AU$3.00 per share, implying a 57% discount to its current price of AU$1.29. This discrepancy hints at a valuation disconnect: while the stock appears undervalued based on cash flow potential, its earnings multiple suggests skepticism about near-term profitability.

Benchmarking Against Airtasker: A Tale of Two Models

Airtasker, a horizontal marketplace for local services, offers a compelling contrast. With a gross margin exceeding 95% and a 15x EBITDA valuation implying 45–50c/share, Airtasker's model is leaner and more scalable. Its international expansion—funded via media-for-equity deals—has driven 76% and 73% revenue growth in the UK and US, respectively.

Hipages, by contrast, operates a subscription-based model with higher friction, generating 1.5 million job postings annually versus Airtasker's 2.5 million. While hipages' revenue is robust, its margin structure is less transparent, and its shift to a SaaS platform may prove capital-intensive.

The Rule of X and Growth Levers

Hipages' Bessemer Rule of X (41%)—a metric combining growth and profitability—positions it favorably against industry peers. Analysts project 157% EPS growth in 2025, far outpacing the market's 21%. This optimism is rooted in the company's ability to monetize its expanding tradie network and SaaS offerings.

However, the path to profitability is not without risks. The company's 2.9% margin is vulnerable to rising competition and operational costs. Investors must weigh these pressures against the potential for margin expansion as Tradiecore scales and geographic diversification takes hold.

Investment Thesis: A High-Risk, High-Reward Proposition

Hipages' valuation is a double-edged sword. The stock's elevated P/E ratio reflects high expectations for future earnings, but its EV/Revenue and EV/EBITDA multiples suggest the market is not yet convinced. For growth-oriented investors, the company's long-term earnings trajectory and strategic investments in SaaS and New Zealand expansion could justify the risk.

Yet, caution is warranted. The recent margin compression and EPS decline highlight the need for disciplined execution. Q3 2025 results will be critical in determining whether hipages can stabilize its profit margins while maintaining growth.

Conclusion: A Calculated Bet on the Future

Hipages Group Holdings is a company in transition. Its earnings deterioration is a symptom of strategic reinvestment, not a sign of distress. While the valuation appears stretched relative to current earnings, the company's long-term growth potential and capital-efficient model offer a compelling case for patient investors.

For those willing to tolerate near-term volatility, hipages represents a high-conviction opportunity. But as with any high-growth stock, the key is to monitor execution closely. If the company can stabilize margins and deliver on its SaaS vision, the current valuation may prove to be a bargain. If not, the premium could evaporate quickly.

In the end, hipages' story is one of ambition and reinvention—a reminder that in the world of digital marketplaces, the line between growth and profitability is often razor-thin.