At one stage there were thought to be multiple bidders for Twitter Inc (NYSE:TWTR), including Walt Disney Co (NYSE:DIS) and Salesforce.com, Inc. (NYSE:CRM). Both companies backed away, concerned about Twitter’s reputation for coddling trolls spreading hate on its site.
Now, Twitter is left twiddling its thumbs while its stock price continues to crumble. My recommendation: Walk away while you still can and buy dark horse stock Angie’s List Inc (NASDAQ:ANGI) instead.
Here’s my rationale.
Why ANGI Stock Over TWTR Stock?
While a loss of potential bidders might seem like a huge problem to investors, Twitter’s biggest issue is its inability to monetize its users, which in turn prevents it from making money.
Big Picture blogger and financial planner Barry Ritholtz recently wrote about why Twitter isn’t monetizing its users. Ritholtz reckons that Twitter doesn’t have enough users and those that it does have don’t generate enough money.
Twitter generates $7.99 in revenue per monthly active user which the market values at $45.10. Facebook Inc (NASDAQ:FB), the undisputed social media champion, generates $12.96 in revenue per monthly active user, but the market values its MAU revenue at $216.33.
Why is that?
Facebook has 1.7 billion monthly active users and is making money while Twitter has 316 million monthly active users and isn’t. It’s that simple.
Which leads to my rationale for owning ANGI stock despite the fact it’s not exactly in Facebook’s league either.
According to Ritholtz, Angie’s list generates $103.08 in revenue per monthly active user, which the market values at $170.64 or 1.7 times MAU revenue. That compares with 5.6 times for Twitter and 16.7 times for Facebook. From this perspective, ANGI stock is clearly not keeping pace with either of them.
That’s why it altered its business model this summer, going from a paid-user membership to a combination of free and paid memberships — Free, $24.99 per year and $99.99 per year — which it hopes will increase the number of users providing reviews in the short-term and, over the long haul, growing the business on a profitable basis.
Since dropping the reviews paywall in June, Angie’s List has added 700,000 members, many of them opting for the free service. Its plan is to convert some of those free memberships to either of the paid plans.
“We are very encouraged by the loyalty of our paid subscriber base,” CEO Scott Durchslag said in its first-quarter 2016 press release. “In addition, we have a substantial opportunity to convert our new free members into premium subscribers over time.”
Getting more users — free or paid — is vital to ABGI stock’s future success. That’s because it generates about 81% of its quarterly revenue from service provider advertising. As the new model evolves, it will develop additional ways to monetize the 55,000 participating service providers.
Durchslag was brought in a year ago to revitalize the Angie’s List brand, which has faced its own difficulties making money since it went public in 2011. Formerly in charge of Best Buy Co Inc’s (NYSE:BBY) global e-commerce efforts, he faces a serious challenge from Amazon.com, Inc. (NASDAQ:AMZN) and its own home services marketplace.
“The Angie’s List brand has a 94-percent awareness rate, it dwarfs anyone else,” he said. “We have six times as many service providers as other brands and three times the number of reviews on service providers than Google.”
If anyone can reignite growth at Angie’s List, it’s a guy who went head-to-head with the world’s largest e-commerce company. I like his chances.
Seeking Alpha contributor Paul Cookson wrote an article in 2013 with the headline “Why Angie’s List Will Never Be Profitable.” While he makes a lot of interesting points, the bottom line is that his prediction came up short. Angie’s List made $10.2 million in 2015 on $344.1 million in revenue. More importantly, it increased both the number of participating service providers and revenue from those service providers.
This business model can work.
While Angie’s List is not out of the woods by a long shot and is going to have the occasional setback as it continues to transform its business, I believe that ANGI stock investors will be rewarded for their patience.
As for Twitter, I’ve never understood why anyone would want to own its stock. That goes double for a company of Disney’s stature.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
