Angie's List CEO Proud of Losing Money
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It all starts at the top, that key executive leadership from the corner office.
In the military it is known as "command presence." When executed properly, any order will be followed without question or hesitation. For Angie's List (NASDAQ: ANGI), the social media site for researching and recommending professional service providers, it entails bragging about losing money for 17 straight years.
In an interview with USA Today that ran on Tuesday, August 14, 2012, Bill Oesterle, the Chief Executive Officer, stated that, "Sometimes, I start my presentations with that. When you think about it, it's not easy to do. Losing money for 17 years is hard. You have to continue to find people to supply capital to you."
Not surprisingly, Angie's List fell 15.95% in trading that day, losing $2.12 a share. In addition to the CEO interview, the lock-up period for investor shares expired the same day, too. Angie's List is now very close to its 52-week low of $10.77. It went public for $13 a share last November.
While the share price of Angie's List plunged, the short position has soared. The short interest for Angie's List is 7,616,800 shares. That is up from 6,714,800, an increase of 13.43%. That jump was registered before recent events, with a high short float already existing.
Although losing money for 17 consecutive years, 28 quarters, is bad enough, the trend is even worse. For the second quarter of 2012, Angie's List lost $23.4 million. That amount is an increase of 45% from Q2 2011.
For investors looking for a change: not gonna happen anytime soon. In the USA Today with Tony Cook, "Angie can't put making a profit on her List,"Oesterle promised this would continue as, "We are going to continue to invest in acquiring households and service companies so long as the unit economies continue to work. That means the cost of acquiring individual households leads to substantially greater return in the long run."
Based on financial statements, it is difficult to see that happening. As demonstrated by the plunge after the lock-up expiration, insiders are looking to bolt when possible. One analyst wrote about a recent secondary offering earlier in the year 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)."
What should be obvious to all, corporate insider or outside investor, is that Angie's List has no competitive advantage or economic moat. It depends on advertising revenues, the same as Facebook (NASDAQ: FB), Google (NASDAQ: GOOG), LinkedIn (NYSE: LNKD) and Microsoft (NASDAQ: MSFT). All are bigger and better as, for the simple reason that rather than losing money, each of these is profitable. There is a 25.74% profit margin for Google. Microsoft has a profit margin of 23.03%. At Facebook, the profit margin is 13.29%. For LinkedIn, the profit margin if 1.81%.
Competition will only get tougher for Angie's List. Facebook is focusing on advertising revenues like those that Angie's List is losing money trying to obtain. LinkedIn is doing more professional advertising. Google just bought Wildfire Interactive, a social media marketing firm, for $450 million. As an expensive lesson in how competitive it is to market on the Internet, Microsoft just wrote the $6.2 billion acquisition cost of aQuantive, an on-line advertising firm.
The investors and shareholders of Angie's List can certainly expect many more quarters of losing money. Those contributing to the increasing short positions have that hope.
Fool blogger Jonathan Yates does not own any of the stocks mentioned in this article. The Motley Fool owns shares of Facebook, Google, LinkedIn, and Microsoft. Motley Fool newsletter services recommend Facebook, Google, and LinkedIn. 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.