Angie's List Will Be A Catastrophe Of Epic Proportions

| About: Angie's List, (ANGI)

Angie's List (NASDAQ:ANGI) is a website that takes verified reviews of service companies, from consumers, to try and help offer potential consumers advice and wisdom on where their money's best spent. Unlike many other review sites, it's different in the sense that there's no anonymous reviewing, so that customers and reviewers must be registered and paid to access the site and its content.


More than 2 million households nationwide check Angie's List reviews to find the best local service providers, like roofers, plumbers, handymen, mechanics, doctors and dentists. And that's just the short list. We collect ratings and reviews on more than 720 different services. The people who join Angie's List are just like you - real folks looking for a way to find trustworthy companies that perform high-quality work.

Angie's List members submit more than 60,000 reviews every month about the companies they hire. They include incredible details about how the project went (including cost), and grade the company's response time, price, professionalism and quality of work -- good or bad -- on an A to F scale. Angie's List members will tell you if a crew was conscious of children and pets, cleaned up after themselves or just totally botched the job.

Shares of Angie's list have skyrocketed, up 87.7% in the last twelve months, and up 104.1% year-to-date; this simply adds to the appeal that Angie's List has as a potential short. It's my contention that not only is the site tremendously overvalued, it doesn't have a viable business plan and will make a great short.

The current price is a product of a raging bull market, speculation, and panic buying. With the launch of stocks like Facebook (NASDAQ:FB) and Yelp (NYSE:YELP) leading the social media charge in the market recently, social media sites are invading the market en masse. Angie's List, it is my contention, is going to be the example of how super saturated the market is, how big of a "social media bubble" we have, and how quickly things can go the wrong direction.

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The arguments against this company are really relatively simple. I'm not going to lead you through any type of crazy complicated QA to get to the bottom of this - we're going to stick with good ole' fashioned common sense.

Anyone who's been on the internet for the last twenty-something years knows that there's certain things that the internet is just great for. One of these things is letting people, who would obviously have nothing to say in real life, air out how they feel about a number of things under the cloak of anonymity - movies, politics, current events, and (you guessed it) products & services.

This is what ANGI hopes to capture for their site, and eventually monetize. The problem is that every other site on the web that has anything to do with products or services, from Amazon (NASDAQ:AMZN) to Google (NASDAQ:GOOG), from Yelp to eBay (NASDAQ:EBAY) all offer the exact same thing that Angie's List offers; reviews. Oh, and these other sites do it for free.

Don't get me wrong, in a society where bottled water is a billion dollar industry, I don't think people paying for something that's widely available for free is too crazy of an idea. I just content that there's no way it's going to work in this instance.

Aside from the company not being profitable, it's spending more on advertising and building a subscriber base than it's making. Normally, this would be alright for a profitable company that's adding a new division or expanding a business model. But, in this instance, we have a company isn't profitable with a cash position that is eroding with each passing day that the company isn't profitable.

SA Contributor George Kesarios, in his excellent article on Angie's List, noted:

Subscriber revenue was up 47% year over year to $14.6 million, while service provider revenue was up 78% over the same period. The problem by default -- as I see it -- is that service revenue was higher than subscription revenue. You see, the company is currently spending a lot of money on subscriber acquisition and then hopes to make money from service providers who advertise to get business on Angie's List, provided they have good ratings by subscribers.

But there is a limit to how much service provider revenue can increase relevant to subscriber revenue. Service provider revenue can theoretically increase faster than subscriber revenue, but not forever. There will come a time when service providers will not make much money and will eventually advertise less to get business because there will be great competition among them. That will then lower service provider revenue growth in the future. If, however, subscriber revenue was more than service provider revenue (and that is not the case), then it would never be an issue.

SA Contributor J Mintzmyer echoes my sentiments, claiming that the company and its stock are essentially worth zero:

In my opinion, based on historical performance and recent operating metrics, this company is worth close to $0.

I highly recommend the November $17.50 and $20 puts to give time for the liquidity crunch to develop further. We are already in a phase of poor solvency, but it takes both to truly crush a company.

Despite the clear over-valuation, I never recommend directly shorting a highly volatile stock.

In short, what ANGI is doing to survive is selling stock. It's the only thing that a non-profitable company can generally do to keep themselves afloat. As more stock sells, the more the company dilutes, the lower the price will be heading. Debt financing is likely to be out of the picture, as the company has an accumulated deficit of $241M. Quarter of a billion in the hole before the company has even turned a penny of a profit - tough spot to dig yourself out of.

So, how does a non-profitable company, operating in a super saturated niche, that's selling stock to survive, trade with a market cap of 1.43B?

I'm generally not a follower, and that's what's made me a decent investor (and can make you one, as well). Going against the grain in a lot of investing situations is what has led people like Buffett to become the titans of investing to begin with. However, in this case, identifying the analysis' of Angie's List on Seeking Alpha (especially from respected contributors like George Kesarios and J Mintzmyer), and every single article alludes to the same thing - Angie's List is not a good vehicle for your investment.

You might not want the risk of shorting it - but what, exactly is appealing people to put their money behind this company and buy its stock? Again, you have contributors from all walks of life, all different perspectives on a wide range of stocks, all coming together to reaffirm that ANGI is a sell or short.

It is true that stocks that are as volatile as ANGI can sometime (as ANGI has done in the past) act erratically and absolutely crush shorts. Look at Yelp, for instance, about a year ago when shorts were betting that unlocked shares were going to crush the price - we had a major squeeze and Yelp ran 20% on no news in one day. LinkedIn (NYSE:LNKD) was trading at a P/E ratio of 1,000 earlier in the year and has run wildly in the face of that. It's insanity with these social media stocks sometimes. This is the type of insanity that ANGI is capable of - so there's some risk in going short. However, none of it, I contend, will ever be fueled by any tangible results.

The beginning of the "social media bubble" is on its way, and what we have here is going to be a case study for why it "all went wrong" when bulls look back years from now and wonder why they're broke, while company founder Angie Hicks is on a beach somewhere drinking a pina colada and hamming it up with the Caribbean locals.

As ANGI continues to lack any value or impressiveness in terms of fundamentals and business plan, I contend is a short "until the cows come home" - which for ANGI, might be sooner rather than later.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in ANGI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.