Will Facebook and Apple Turn Angie's List into the Next Digg or MySpace?
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Angie's List (NASDAQ: ANGI) operates a "consumer-driven solution" for its fee-paying members to research, hire, rate and review local professionals for home repair, health care and automotive services, among other needs. The business model of Angie's List has no economic moat, no competitive advantage; and is losing both subscribers and money. Angie's List has all of the potential to be the next Digg, MySpace or the Pets.Com of this decade.
Digg was a major social media site that too listed service providers among other features, and it just sold for $500,000. In 2008, according to Dow VentureSource, Digg was valued at more than $160 million. The present market capitalization for Angie's List is $844.4 million.
It is difficult to figure out exactly the competitive advantage or economic moat that Angie's List has against social media rivals such as Facebook, LinkedIn, Microsoft (NASDAQ: MSFT), Google (NASDAQ: GOOG), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL) Yelp or Craig's List or the on-line yellow pages of AT&T for that matter. Any business operating a Facebook page, website or utilizing Microsoft, Google or Amazon can accomplish what it needs to with access to far more viewers than Angie's List and without having to pay a subscription fee.
That holds true for smartphones, too. There are many aps for an iPhone that accomplish what Angie's List charges for, in addition to the mapping functions, among many others. This is equally valid for LinkedIn or Craig's List. As an example, the i Need a Doctor app (www.ineedadoc.net) for Apple's iPhones has been around since 2009. As for references about a doctor, users of the iPhone app can review patient ratings and see if the doctor has been honored with a "Top Doctor" designation. Competition from the smart phones of Amazon (Kindle), Microsoft (Windows) and Google (nexus) will be just as fierce.
In theory, the competitive advantage for Angie's List is the consumer review feature. According to one commentator about this, "...the average number of reviews/contractor is quite low, in the single digits, thus enabling a contractor to easily game the system." The online yellow pages of AT&T also offers reviews. Offering feedback from customers can hardly be considered a barrier-to-entry or economic moat.
As a result, Angie's List is losing money and subscribers; and the insiders are looking to cash out. With a negative earnings-per-share of 1.398, the secondary offering of Angie's List is structured so that the $109 million that, "The offering has ANGI only receiving $8.7 million of the overall funds with the rest of the 92.1% of proceeds going to a series of insiders including the CEO, the founder, other directors and early investors cashing out of their shares. In total, Officers and Directors of the company that are selling shares in the offering represent 4,234,381 shares, or 50.1% of the total shares sold in the offering. The balance, 42.0% is being sold by other early investors. For the individuals who are most familiar with the company to cash out to this degree is a major red flag which should be carefully considered by prospective or existing shareholders."
About that, Warren Buffet counseled that, "It's almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors)."
In addition to the insiders, Angie's List is having difficulty keeping subscribers. Angie's List reports a 25% attrition rate. But that does not include monthly subscriptions, which would probably make it even less attractive. If monthly subscriptions made the attrition rate look more favorable, then surely Angie's List would include it! Noted one analyst, "Since monthly members almost never renew their subscriptions for more than a year, the real renewal rate is significantly lower than what is represented in their SEC filings." With an attrition rate this high, which only compounds the losses over time, Angie's List must spend heavily on marketing and advertising expenses to attract new members. In addition, in some areas Angie's List is now giving its services away for free.
Why does Angie's List lose members? From a blogger by the handle of "blueic" about his experience with Angie's List: "I use to be a member, until I ax for dated and past reports of several companies, of which, they declined to provide...Furthermore, their acceptance of advertising should be a warning to members, as it is without a doubt a conflict of interest..."
As a result, Angie's List has not reported a net profit for the past six years of its operations. Recent revenues of $104 million came with a $53 million loss. Angie's List went public in November 2011 at $13 a share. It is now trading around $14.74, with a 52-week range of $10.77 and $19.82. As for the future of Angie's List, according to one analyst,"ANGI's aggressive accounting practices serve to obscure its poor operating performance and how ANGI appears to be on track to burn through its entire existing cash reserves in 1-2 years."
jonathanyates13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Amazon.com, Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
