Yelp and Angie’s List: Birds of a Feather Flock TogetherANGI) have rallied ever since the company shared its Q3 earnings report. Despite the fact that Angie’s earnings were not good, shares have appreciated almost 40%. The primary reason behind Angie’s List jump is the buyout offer by InterActiveCorp (IACI). InterActiveCorp recently offered to buy Angie’s List for $8.75 per share.
Shares of rival Yelp (YELP) have also appreciated since InterActiveCorp’s buyout offer.
I think the acquisition was a no-brainer and Angie’s List should have accepted the offer. However, now that the company has rejected the deal, I think investors should consider shorting the stock as it will fall back to its earlier levels in no time. Hence, I think Angie’s List is a great short candidate. In addition, with Yelp appreciating without any significant tailwind, I think investors can also short the stock going forward.
Terrible Business Model
Both Yelp and Angie’s List have a lot of resemblance. Both the companies have lost considerable value over the last few years and have terrible business model. When it comes to profitability, both Yelp and Angie’s List have a bad track record as both companies struggle to breakeven every quarter. Moreover, the companies have run into many controversies over the recent past as many business owners have blamed Yelp and Angie’s List of altering reviews on their respective website.
In addition, the companies are facing increasing competition from the likes of Google and Amazon in their respective fields. All in all, Yelp and Angie’s List are birds of a feather and with competition increasing consistently, more downside is imminent.
What makes the matters worse for the above mentioned companies is the fact that both of them are trading at a hefty premium. Despite the headwinds, the lack of profitability, and a bad business model Yelp and Angie's List are trading at 107x and 55x trailing earnings, respectively. No matter how you look at it, both the stocks are massively overvalued, and with the companies expected to remain unprofitable, I think they make a good shorting pair.
Yelp and Angie's List have faced similar problems in the past. With competition increasing, both the companies are faced with the same problems yet again. Given the companies’ terrible business model, and lack of profitability, it’s highly likely that other competitors will be able to put a lot of downward pressure on both Yelp and Angie’s List. Hence, I think investors should short both the stocks.
Published on Dec 3, 2015By Ayush Singh