Even with a recent sell-off, social stocks like Facebook (FB), LinkedIn (LNKD), Pandora (P) and Yelp (YELP) still have posted juicy gains for 2013. But there is one company that has been left out of the party: Angie’s List (ANGI). Since reaching $28 per share in July, ANGI stock is now trading at only $12.34, and there are serious reasons behind the plunge.
Just look at ANGI earnings for the third quarter. Granted, the numbers looked fine at face value, with revenues up 56% to $55.5 million and the net loss down from 32 cents per share to 23 cents per share. But it was actually a big miss compared to the Street’s forecast, which called for a loss of 20 cents per share on $66.1 million in revenues.
Making matters worse, the company’s Q4 outlook was far robust. Angie’s List is expecting to post about $68 million to $69 million in revenues, which was off from the consensus estimate of $70.4 million.
Given the strong fundamentals of the online market — driven by mobile usage as well as a shift to digital advertising — ANGI should be getting more traction. But then again, the company’s business model might be dragging it down.
ANGI charges monthly subscription for access to service provider reviews. But in today’s world, where everything seems to be free, that approach feels anachronistic. Why wouldn’t users just go to a rival service like Yelp or Google (GOOG)?
ANGI’s CEO William Oesterle hasn’t exactly helped. According to a recent Wall Street Journal report, he noted that there would be a 75% reduction in fees in New York, Washington, Chicago and several other cities, before ultimately backing down on the promise. In the end, Oesterle may have no choice but to pursue a free model, which would be a huge disruption and would likely result in a painful revenue cut.
But there was something else that jolted investor confidence: Key executives have been bolting. The latest exits include Chief Technology Officer Manu Thapar and Chief Financial Officer Robert Millard.
Despite all the bad news, ANGI stock does look cheap — on a relative basis. Its price-to-sales ratio is 3, compared to Yelp’s 20 and LinkedIn’s 18.
But cheap valuation may not matter much for ANGI. When it comes to social stocks, Wall Street is mostly focused on top-line growth, which ANGI has struggled with. Until the stock can get its business model back on track, expect investors to keep bringing it down.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.