Shares of Care.com (CRCM), which operates an online platform
where families can hire caregivers (to provide services such as child care,
senior care, pet care, and housekeeping), ticked higher at today’s open after
selling off yesterday (-13%).
The stock traded sharply lower on an article from The Wall Street Journal that probed CRCM's business model, pointing out that the company undertakes only preliminary screenings of candidates available for hire through the site. This leaves the responsibility for ensuring that diligent background checks are performed and that credentials are verified for potential service workers largely with platform customers. The article said that this has resulted in "sometimes tragic outcomes," including accusations of criminal conduct, and the platform has been found to have on occasion incorrectly stated the licensure of various day-care centers in its listings.
In response, Care.com announced some changes to its approval processes in an 8-K filing last night. Specifically, while the company will continue to allow newly-enrolling caregivers to prepare applications to jobs and to complete their profiles, the company will no longer release any applications or permit those caregivers to send messages on the platform until its preliminary screening processes have been completed. Care.com also announced that it is exploring ways to help verify the identity of care seekers and individual caregivers in its consumer marketplace. It will also review potential revisions to its closure notification policies for when it removes an individual's account.
The company furthermore announced changes to certain business listings on its consumer marketplace. Like other digital platforms, the company had used publicly available data to create directory listings for small and medium-sized businesses that provide childcare services. CRCM had allowed these businesses to claim ownership over the listings. Recently, CRCM removed all listings that had not been claimed.
Also, CRCM has made more prominent its notice to users communicating that it does not verify the credentials or licensing information of businesses listed on its consumer marketplace. Finally, the company has created a new Board committee purposed to oversee its safety and cybersecurity programs.
Taking a step back, as most people know, finding care is stressful, and it's a growing problem in the U.S. It's among the most important and expensive decisions that families will make, including in households that do not feature a stay-at-home caretaker. The process for researching options is transitioning from word-of-mouth to online. CRCM is the largest player in the online space, which it sees as a big advantage.
As you can imagine, Care.com's reputation is critical to its success, so this article really hits where it hurts. Having a national scale gives CRCM a leg up, as, for example, many adult children do not live near their elderly parents, so CRCM gives those adult children a known name to trust in the process of connecting their parents to assistance with unfamiliar local providers. This article shakes that important trust a bit.
In sum, we think that CRCM's changes are a good step in the right direction. Protecting their reputation is paramount to the company's success. From a broader sense, Care.com has some attractive qualities. Care is a very fragmented market, but Care.com says that its brand is quickly becoming known. Also, its market development is still in its early days, with just single-digit online penetration. It'll be interesting to see if this article turns out to represent a near-term blip or a longer-term issue.
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