Angie’s List (ANGI) has built its marketing around simple, no-hassle, feel-good service. But things haven’t been so nice for shareholders. For the year so far, ANGI stock is off by a grueling 56% and is now trading at an all-time low.
ANGI stock has certainly become another cautionary tale about hot IPOs. Back in late 2011, the company pulled off its offering, with ANGI stock popping about 33%. Along the way, there were some nice moves to upside. In fact, the stock reached an all-time high of $28 per share in early 2013 — more than double its IPO pricing.
Things have mostly gone downhill since then.
But, whenever a stock sinks this much, the question that investors must ask themselves is whether the stock has fallen into oversold territory, or whether it’s better off just avoiding. Here’s a look at the pros and cons for ANGI stock.
ANGI Stock Pros
Strong Marketplace: Angie’s List has 2.8 million paying subscribers who seek out qualified reviews for service providers, such as home care, health care and auto service. The user count has been growing at a nice pace, up 31% over the past year, and the first-year renewal rate is at a decent 74%. Keep in mind that the bulk of revenues come from service providers. During the last quarter, there was a 39% spike in growth to $60.4 million. In other words, service providers definitely see lots of value in the Angie’s List user base. According to the company, the typical user is between the ages of 35 to 64, college educated, has income of at least $100,000 and owns a home.
Market Opportunity: The potential market is enormous. In the U.S., the local ad market is worth a whopping $145 billion. But only $37 billion comes from online sources right now. Oh, and mobile represents a mere 2.7% of the overall ad spend. The good news is that Angie’s List has been aggressively investing in its apps and has also marketing them in their television commercials.
Valuation: Yes, AGNI stock looks pretty cheap at current levels. After all, the price-to-sales ratio is only about 1.4X, which compares to Yelp’s (YELP) 18X. Other marketplaces also trade at a higher multiples. For example, the price-to-sales ratios of HomeAway (AWAY), eBay (EBAY) and Care.com (CRCM) range from 3X to 8X.
ANGI Stock Cons
Growth: It’s true that the most recent quarter saw a nice increase in sales, up 33% to $79 million. But to achieve this, Angie’s List had to spend $36 million in marketing. This was up from $23 million in the prior quarter. However, Angie’s List plans to reduce the spend to $20 million to $23 million in Q3. Given this, it’s reasonable that the company will see a deceleration in growth. But the company probably has little choice. After all, the company only has $57 million in the bank and remains unprofitable.
Big Deals Business: Unfortunately, it isn’t such a big deal anymore. The business is essentially an email service that provides deep discounts. But as should be no surprise, the revenues have been deteriorating. The fact is that consumers are getting fatigued with email marketing. What’s more, the rapid shift to mobile has also adversely affected this category. Going forward, it looks like the Big Deals business will remain a drag on growth. Angie’s List has already cut the workforce in the unit by 97 people or about 5% of the total workforce.
Business Model: This is probably the most serious issue with ANGI stock. Let’s face it, getting consumers to pay for something is no easy feat. It’s even harder when there are many top-notch free offerings, such as Yelp, HomeAdvisor, Insider Pages, and Kudzu. But the paid model is probably weighing on growth. After all, Yelp’s most recent revenue growth was 65%, almost twice as much as Angie’s List. Besides, Angie’s list is only in the U.S., whereas Yelp has been expanding into various countries. Not that Angie’s List even has the resources to make a global push.
Verdict on ANGI Stock
Angie’s List is a strong brand and operates a large-scale marketplace, with users that have favorable demographics.
But there are just too many negatives. The company is low on cash and has needed to significantly reduce marketing expenses. The Big Deals business will also remain an albatross. Yet the biggest issue is the business model. The consumer-pay approach looks like a loser when it comes to local search.
So, should you buy ANGI stock? No — even though the stock is cheap, the core business seems to be broken.
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.
