Angie’s List Inc (ANGI), which operates a platform to help consumers find contractors and other service providers, is known for its cheerful commercials. But as for investors in the company, the experience has been mostly a nightmare.
During the past 12 months, ANGI stock has plunged a grueling 64%.
So what’s next? Could there be a buyout of Angie’s List? Or, perhaps there could be even a bankruptcy?
Well, short sellers seem to think there could be some kind of disaster (they make money when the stock price falls). Consider that about 39% of the float of ANGI stock is short.
Yet a bankruptcy at the company does seem remote. For the first nine months of 2014, the operating cash flows for Angie’s List came to $8 million and the ending cash balance was $62 million. During this period, sales increased by 31% to $233 million.
No doubt, ANGI got a boost from securing a five-year, $60 million term loan facility. But then again, it shows that bankers have confidence in the company.
OK, but then is a buyout of ANGI likely? Well, it’s true that Angie’s List has some valuable assets. There is a strong technology platform, which includes sophisticated search and e-commerce systems. There are also a set of engaging mobile apps.
ANGI also has more than 20 years’ experience in the local marketplace business. In fact, the company has more than 3 million paid customers, up by three times over the past three years.
While all this is great, there are still some big-time red flags that could make a deal unlikely. Keep in mind that ANGI has been propping up cash flows by reducing marketing expenditures (notice there aren’t as many commercials lately)? Already this has resulted in slower growth as the company has missed estimates on its last two earnings reports.
But another issue is the business model for ANGI. The fact is that it is tough to get consumers to pay for any type of online service. It is even tougher when there are free alternatives like Yelp Inc (YELP), Handybook and Kudzu. For example, rival HomeAdvisor — which is operated by IAC/InterActiveCorp (IACI) has commercials that essentially mock the fee-model of Angie’s List!
Granted, the company can move to a free approach, which would likely interest suitors like Google Inc (GOOG, GOOGL). But the Angie’s List brand is known for its paid subscriptions. If anything, it would be confusing for consumers if there was a big change. So in the end, it may be easier for a rival to build its own platform and brand so as to get a piece of the local ecommerce market.
This is what Amazon.com, Inc. (AMZN) has done with the launch of its local services of plumbers, electricians and other contractors (it is currently available in 15 cities). Oh, and users do not have to pay a fee.
Given the poor performance of ANGI stock, it does look like investors are not confident a buyout will happen. After all, with competition get tougher and the company’s marketing spend being reduced, it will be tough to churn out much growth. In other words, it’s a good bet that ANGI stock will continue to be a slog for investors.
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.
