Angie's List: Chances of Bankruptcy are High
In a world of diverse Internet, consumers don’t really like paying for online content. This is exactly why I find the business model of Angie’s List (ANGI) quite unstable. The stock has fallen over 20% since I recommended shorting it earlier in 2015, however it has staged a good comeback as of late. After touching all-time lows of $3.76 just three months ago, Angie’s List has recovered nicely and is currently trading at $6.15.
Although the company did welcome a new CEO in the form of Scott Durchslag last month, but the company is still in troubled waters. Hence, I find the heroic comeback quite baffling and I think investors should continue shorting the stock at present valuations.
Despite the arrival of the new CEO, I don’t know how Angie’s List can revive its business in a world of increasing competition. Angie’s List annual subscription costs about $29. However, to grow revenue rapidly, the company issued coupons that slash the rate to under $8. In addition, it also has a monthly subscription of roughly $3.
While the subscription is cheap, I don’t think consumers will continue to pay for the service in the long-run. Consumers don’t really like to pay for such services, which is why services provided by companies like Yelp and TripAdvisor are free to access.
Angie’s strategy of cutting subscription charges to grow revenue worked well in the beginning, however it seems like the company will soon hit a brick fall as revenue isn’t growing as fast anymore. The company missed the consensus estimate on revenue in the last quarter, and is still struggling to report profits. Although Angie’s did manage to beat estimates on earnings by severe cost-cutting measures, falling revenue is a massive red flag.
To make matters worse, the competition is also increasing as last year Amazon entered the local services market in the form of Amazon Local. Amazon offers great savings on local services and will likely dethrone Angie’s in the long-haul. Given the size of Amazon and the amount of money at the company’s disposal, it’s impossible for Angie’s List to compete against it in the long-run.
Considering the points mentioned above, I fail to understand how Angie’s List can continue increasing revenue in the years to come. Paid member growth is slowing down as the company only reported 12% y-o-y growth in subscribers in the last quarter. By comparison, the growth in the year before that was 31%. The company continues to offer deals so as to grow its customer base, however I don’t think it is a good move. The company is cannibalizing its profit margin and it will be impossible to increase subscription prices in the future. All in all, with consumers reluctant to pay for online services, I can see Angie’s List going bankrupt in the long-run. Hence, I think the stock is a definite short at present value.