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Summary

  • Angie's List, founded in 1996, provides crowd sourced reviews of local businesses.
  • Angie's List stock, founded in Jan 2012, provides crowd sourced ways to make money disappear.
  • Included herein are 5 reasons that I believe Angie's List to be a terrible investment.

As a quick reminder, Angie's List is a company that provides crowd sourced reviews on local businesses. From AngiesList.com:

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.

Simply put, I've called Angie's List (NASDAQ:ANGI) one of the companies that I would "short to oblivion". It was obvious to me that the company was very different from other social media stocks that I was familiar with the second I started seeing TV commercials for it - every 12 seconds no matter what station I was on.

I quickly thought to myself, "why don't I see these types of commercials for Twitter (NYSE:TWTR) or Facebook (NASDAQ:FB)?"

What was so damn special about Angie's List that founder Angie Hicks had to make her way onto my television every day and tell me about a site that I've never heard of, let alone used. To this day, I haven't used the site more than once (which was for stock DD purposes), nor do I plan on ever using it again.

It's commercial of Angie Hicks...

(click to enlarge - source)

...after commercial of Angie Hicks....

(click to enlarge - source)

...after commercial of Angie Hicks....

(click to enlarge - source)

Then, on the site itself? Why, more Angie Hicks, of course!

(click to enlarge - source angieslist.com)

I'm not "tired of lousy service", I'm tired of "Angie's List commercials!" I am being force fed all the Angie Hicks that I can take. It must stop!

But maybe it's not such a bad company, right?

Interested to see if things at the company were as appalling looking as the last time I wrote about them, I took some time this weekend to dive back into the world of ANGI, only to discover the stock should remain a promising short.

Ever since my last article, I've been wondering to myself, "what the hell has Angie's List been doing all this time?". The stock price continues to deteriorate, the short interest remains high, and the expenses have run up commensurate with revenue. This company cannot seem to undo the "lock step" with the revenue and its quarterly expenses. Thus, net income continues to be anything but impressive for the company.

According to TipRanks, my last article on Angie's List was dead on.

(click to enlarge)

I made it a short and sweet title - Angie's List Will Be A Catastrophe Of Epic Proportions - and I did so while the stock was still trading at around $23/share. If you shorted it when prompted by my article, you'd be up somewhere in the neighborhood of 47%.

But, that was then and this is now. Here are the 5 biggest items that scream to me that Angie's List should still be on your short radar.

1. Trending/Technicals

"The trend is your friend" - in this case, that's 100% true if you've shorted this stock and then watched the ride down from the mid $20 level - where insiders themselves also unloaded stock.

Right now, ANGI's six-month chart looks to show that the stock is in the middle of a major downtrend, where it's traded healthily on normal volume. The RSI seems to show that it's been a natural move downward, and the moving averages look to be in a nice slope downward after the 50DMA plunged through the 200DMA in early October 2013.

Everything about this chart screams "avoid" or "sell".

2. Short Interest

Interestingly enough, QTR doesn't seem to be the only one with a firm grasp on the obvious. ANGI short interest, representing 21% of the shares outstanding right now, has skyrocketed since the company became public in 2012.

ANGI Short Interest Chart

ANGI Short Interest data by YCharts

Apparently, there's 12.4 million shares out there that aren't buying the TV commercial bit, either.

3. Financials

At some point, when a company builds revenue, their costs are expected to stay somewhat fixed. This leads to top line growth and resultant bottom line growth. Angie's List hasn't been able to figure that out yet. Spending astronomical amounts on advertising and consistently tacking onto the SG&A has prevented this company from the type of profitability that investors to the long side desperately want to see.

ANGI SG&A Expense (Quarterly) Chart

ANGI SG&A Expense (Quarterly) data by YCharts

The company's net income struggles to stay above even, as revenues and total expenses seem to unfortunately be heading the exact same direction, at the exact same clip. Some companies attribute this to aggressive growth. In this case, I'm attributing it to lack of real substance and profitability power.

ANGI Net Income (Quarterly) Chart

ANGI Net Income (Quarterly) data by YCharts

SA Contributor Ken Copley seems to think that the consumer pricing strategy is to blame:

Please change the consumer pricing strategy. The value is in the membership - not the membership fee! Please require membership registration, including credit information. But give away the consumer membership! Take a leap of faith and provide an altruistic service to the consumer! If the service really creates value in the market, then the consumer naturally gravitates to the service. This creates a bigger a market for the service provider, while spending significantly less on marketing expenses. It will make it significantly easier to sell the value of ANGI in the market, especially to the service provider, creating significant value for the ANGI shareholder.

Coming back to the original question: "why has ANGI so dramatically underperformed in the equity market?" The main reason: the consumer pricing strategy! This strategy has actually created significant impediments to the consumption of the ANGI service. Price (by definition) creates an impediment to consumption. ANGI compounds the pricing impediments by using a tiered, consumer pricing strategy. Each pricing tier not only impedes consumption but also multiplies the impediments to consumption when factored together. The ANGI consumer pricing strategy has destroyed significant shareholder value, because it's failed to recognize the true-value of membership! Selling consumer paid subscriptions doesn't recognize the true-value of membership! The true-value is in the membership - not the membership fee! The member creates the value of a market, especially to the service provider! ANGI sells the value of the market to the service provider! ANGI creates significant value for the shareholder!

While I agree with Ken, even if the company does change its pricing model - I still think we're still looking at the tip of the iceberg.

Meanwhile, consumers are starting to write reviews about Angie's List itself. The student has become the master! This one consumer's review of Angie's List also seems to make sense of why the site is loathed by some:

Let's say that I'm a consumer. If Angie's List charges me $5/month I have to get a lot of value out of the list for it to be worth that membership fee. They have millions of customers though, so apparently it's compelling to some folks. Let's say that I'm the business owner, though. If I can create a fake email account and use my home address (or my neighbors address) so that Angie's List doesn't know who I am, then $5/month is a pittance for being able to enter a review of my own business.

So, their whole "we charge a small fee to keep the reviews honest" thing doesn't work for the stated policy, but it sure does help them bring in revenue without worrying about advertising.

Here's the worst part - after your company gets added they contact you and say something like "your company has been added and reviewed. If you'd like you have an enhanced listing you can pay us for that."

So the whole "we are acting in our members best interests" thing is [BS]! They have one interest in mind: their own.

The thing is - it's really hard to run a review site. Really hard. Getting valuable metrics is difficult. How does each user know if they should be trusting the other users of the site. Angie's List's paid membership program clearly doesn't make sense (though it may work than other current options). So, what's the future? Fortunately, it's the online corollary to the system you already use in real life: you ask your friends and colleagues via social bookmarking that helps guide you to the best local plumber. This is the clear way to solve the problem in the future

Which moves us on to...

4. Ridiculous Branding

Presumably, Angie's List (as a name) was a take on Craigslist. Who knows which came first - the only thing that matters is that millions and millions of people use Craigslist daily, without the help of being prompted by a television commercial. Craigslist is far more of a household name than Angie's List will ever be - so why still be a "list"?

Regardless of whether or not the site was named after Craigslist (Craigslist started in '95, Angie's List in' 96), it has lost the war of the "lists". Yelp (NYSE:YELP) has a consumer brand name that's different. TripAdvisor (NASDAQ:TRIP) has a consumer brand name that's different.

My point? There's a reason that you don't see people coming out with brand new restaurant review sites and calling them "Belp!" The reason being, of course, that someone beat you to the "-elp!" punch. Same here with Angie's List - for just some people, there's only going to be one "list", and it's this one...

(click to enlarge - source craigslist)

not this one...

(click to enlarge - source)

It's time to change the name and change the branding.

Consumers aren't buying it and the market isn't buying it. Change the name, change the site layout, and start over again from scorched Earth. Angie's List - as it is - probably doesn't have that much more room to run as a company, in QTR's opinion. And, for the love of God, it's time for Angie to hit the road. I mean this in the nicest way possible, but I can't stand watching her beg for business every day on television, and I know I'm not the only one.

5. Absurd Insider Selling

Alright, so the branding is old and the business model is flawed - but it's not like insiders don't believe in the company and are walking out the door with giant sacks of money while retail shareholders who went long have been decimated, right?

Wrong.

Even insiders that run full fledged scams know to make the token open market buy occasionally. Here we see 648k shares sold in the last twelve months, which accounts to somewhere near ~$12-18 million doled out to insiders.

(click to enlarge - source nasdaq.com)

Some other interesting stats:

Number of shares bought: n/a

Number of open market buys: n/a

Number of all purchases: n/a

Conclusion

Here she is, looking at you - as if to say, "help me."

(click to enlarge - source)

If you think things have been rough for the last year, what's going to happen when the macro market indices get themselves to a point where they're in correction territory - or we enter into a bear market?

Companies without the fundamentals and high multiple names are going to be the first ones that are likely roped in in a big way; this includes companies like Angie's List. When fund managers look to dispose of items that have been playing the same record for the last couple of years sans results, Angie's List is likely to be the prime target to unload for those that are holding it. Additionally, towards the end of the year - no matter what the major markets are doing - Angie's List is a prime target for tax loss selling. Because, unfortunately, we know that no one holding this stock long has made any money in the last twelve months.

I continue to contend that the end isn't likely far off for Angie's List. Whether it's unceremonious and comes via dilution, or it's quick and painless, this is one name that I would not want to be in heading into the second half of this year.

Until the company can rebrand, show that it's capable of driving net income growth, and get insiders involved in trying to build a success story, Angie's List remains an avoid at all costs.

Source: Angie's List: Portrait Of A Catastrophe