Angie’s List (ANGI) stock is rocketing higher Wednesday on reports that the consumer reviews business is exploring the possibility of a sale.
The London-based Financial Times, citing unnamed sources, reported late Tuesday that ANGI has hired bankers to assist the company its search for viable “strategic options.”
The strategic option of turning profitable has remained elusive for Angie’s List. While ANGI boasts an enviable record of compounding sales growth — revenue hit $245 million in 2013, a 438% increase from 2009 levels — the company has been unable to efficiently reduce costs despite the incredible scalability that the Internet offers.
After peaking at $28 per share in June 2013, ANGI stock had endured a precipitous 77% decline before news of Angie’s potential sale broke. Back in August, Blue Chip Growth Editor Louis Navellier cautioned against investing in ANGI stock, reminding investors that…
“Angie’s List has not yet turned a profit and has consistently fallen short of expectations. The company bet heavily on its ‘Big Deals’ promotional offers of deeply discounted services, and the program has been a dud.”
Navellier went on to give ANGI stock a “strong sell” rating. As of yesterday’s close, ANGI shares were down 21% since that call, and even after today’s rumor-driven advance, shares are off some 10% from that point.
Setting aside the fact that the company is glaringly unprofitable, Angie’s List has a few more fundamental challenges that investors should recognize as red flags.
To begin with, the ANGI business model is hopelessly flawed.
Angie’s List charges consumers a membership fee for access to reviews on local service professionals like plumbers, roofers, carpenters, etc. The thing is, Angie’s List turns around and charges annual membership fees to the service providers it lists on its site, too. This creates an apparent conflict of interest in which Angie’s List’s primary customers — the service providers — are the very same companies that Angie’s List members give ratings to and search for.
Increasingly, there are high-quality free alternatives for consumers seeking out local professional reviews. Yelp (YELP) and Google (GOOG) come to mind, as well as smaller players RedBeacon and HomeAdvisor. This surge in competition was one of the reasons InvestorPlace’s Tom Taulli advised against owning ANGI stock way back in January. (And a pat on the back there — shares are off 50% since then, even after today’s advance.)
And what might be the ultimate red flag for Angie’s List, notorious company-killer Amazon.com (AMZN) also entered the local services market back in June.
Perhaps the crowding of Angie List’s industry is to blame for the company’s soft financial results in recent quarters and ANGI stock’s consistently declining price. ANGI stock shed 16% in a single day in July after second-quarter sales, net income and the future outlook all disappointed Wall Street.
The hubbub surrounding Angie’s alleged preparation for a sale may or may not be true, but that doesn’t justify an investment. Buying a consistently unprofitable company with a flawed business model that competes against Silicon Valley elites — all on the hope of a buyout — is a gamble, plain and simple.
Please keep your distance.
As of this writing, John Divine was long GOOG and GOOGL.
