Since publishing our previous article on Angie's List (ANGI), it seams most investors agree with our opinion as is evident in the Short Interest which is a whopping 37% of float, making this an un-borrowable stock. In addition, ANGI's share price dropped 30% since our recommendation. In this article we will update our calculations based on the second quarter fillings and show that ANGI's performance has deteriorated and it is still on track to spend all its cash in the next 12 months.
The following table provides an update on the members joining the service and the number of users quitting the service:
(click to enlarge)From the table it is obvious that in Q1 and Q2 of 2012, ANGI's members have been canceling their membership at about the same rate as previously (32%-on an annual basis), which supports our previous analysis of capitalizing the marketing expenses incurred and expensing them over a three year period.
The following table presents ANGI's financial statements based on our adjustments (capitalizing marketing expenses and amortizing them over a 3 year period):
After adjusting for the marketing expenses, it is clear that also in Q1 and Q2 ANGI's management was not able to improve the business performance, although top line has been growing steadily. ANGI's (adjusted) losses as a percentage of revenues have even worsened and increased to 23% and 21% compared to 10% and 18% in Q3 and Q4 of 2011.
According to our calculations (as ANGI's management does not provide this information on a quarterly basis), the company used in its operations about $19 million of its cash in the first half of 2012. However, the company financed a major portion of the $37 million loss in incurred in the first half of 2012 by increasing its current liabilities (deferring payments to suppliers), which enabled it to show a relative high cash balance as of June 2012. The company's accounts payable and accrued liabilities increased over this period by approx. $15 million. Tanking both these factors into account, the company is currently on track to spend about $34 million in 6 months, or approx. $70 million on an annual basis.
As the company had only $76 million as of June 2012, the company will need to tap into the capital market and raise more equity which will cause dilution to shareholders.
As we believe ANGI's business model does not work, and the more ANGI's revenue grows, so do the company's losses (see our previous article). We recommend shorting the stock.