Friday, October 25, 2013

Indianapolis-Based Angie's List Continues to Lose Money

The Indianapolis Business Journal reports:
Angie's List Inc. on Wednesday said it suffered a smaller loss in the third quarter, but the online business-rating service's results and outlook fell short of Wall Street expectations.

Shares of the Indianapolis-based company fell 72 cents, or 4.7 percent, to $14.73 each in aftermarket trading after closing at $15.45 Wednesday....

Angie's List lost $13.5 million  or 23 cents a share, in the third quarter, compared with a loss of $18.5 million, or 32 cents per share, in the same quarter last year. Revenue rose 56 percent, to $65.5 million.


The number of paid memberships as of Sept. 30 was 2.4 million, compared with 1.7 million a year ago, a rise of 44 percent.

"We added a record number of new members while making significant investments in the business," said CEO Bill Oesterle in a prepared statement.

But the first-year member-renewal rate fell 1 percent, to 75 percent. And operating costs also rose 31 percent, to $78.5 million, on higher expenses.
Angie's List was co-founded by William "Bill" Oesterle and Angie Hicks in 1995 in Columbus, Ohio.  It shortly thereafter relocated to Indianapolis.  I believe it has only shown a profit in two quarters during the entire time its been in existence. In May of this year, Citron Research published a stinging 16 page critique of the Angie's List business model.  
Angie’s List is the most ridiculous, stupid, misunderstood, negligent, nonsensical, outdated, irresponsible business model in the new web economy. Citron will show the obvious fatal flaws that Wall Street has overlooked,as the analysts cheerlead for a company whose only accomplishment is losing less money than they predicted.  New economies give rise to disruptive businesses that are commonly overvalued by the market due to their potential; rarely do they give us a 15-year-old business model that couldn’t make it past a first year business school presentation.
In Part 1 of this expose,we will discuss the structural premise of Angie’s business model that renders it terminal, and can not be ignored by investors. This business model is so  obviously flawed and inferior to their competition that we believe it is a story in itself. Part 2 will examine in detail the accounting shenanigans played by Angie’s List to create the illusion of “losing less money” than expected.All of the metrics that support a growth story in Angie’s are skewed to deceive;we will prove that in part 2.
Established in 1995, Angie's List has since has accumulated a deficit of $219 million, while insiders have enriched themselves by selling over $135 million worth of stock since its 2011 IPO debut.  All of this is predicated on a business model that does not work, whose revenue is overly dependent on a large phone room,does not and cannot grow virally, and makes zero logical sense. In a bull market, it seems that analysts look at a stock price first, then reverse - engineer a thesis, no matter how preposterous, to explain and justify its valuation
It is the opinion of Citron that the recent runup in stock price in Angie’s List is the worst of Wall Street running amok on its own self-serving hype.
The Citron article then launches into a detailed critique of the Angie's List business model.


guy77money said...

What did Heinlein say, "Of course the game is fixed! But you can't win unless you play." I subscribed to it for one month and found the reviews to not be much better then a free web search. said...

The shop that looks at such businesses in china is

Ellen said...

Isn't Amazon a money-loser, too?

Anthony said...

I have always had this one rule in business regarding my marketing vehicles.

If the company offering me a marketing vehicle can't themselves remain solvent - how would I ever expect their product to help me achieve the same.

IMO - their failure is in trying to generate revenue on both sides of the fence at all costs.

It's just a matter of time before this company implodes at this point.

Everything they do (in recent years) is counterproductive to their theoretical intended value.

Putting businesses at the top of this food chain - because that's where they belong - AL sells "proven reliable and high quality businesses" without that - they have nothing to peddle - their walls crash down.

Business spend money on Angie's List to first and foremost - get better customers - customers that seek a better product or service and are willing to put that before price. That's why they incur the same costs to market to 50,000 as they do 500,000 elsewhere.

What they have gotten:

Customers trained to use their ability to negatively rate a business used as means to extort freebies/discounts.

Customers with a almost guaranteed sense of entitlement, "we are a paying AL member, therefore we should be treated above and beyond even royalty".

Lastly - they are now devaluing these products and services through their "big deal" program. So instead of getting better customers willing to pay a fair price - they are training their customers to be coupon clipping deal hounds.

Explain to be what the benefit of high advertising costs, to very a very limited member base, who are now being trained to expect (as per their website) to "save up to 80% on quality services from highly rated contractors and doctors" is.......

Not even getting into the issues on the member side - their model is severely flawed - and eventually they won't be able to pull the wool over the eyes of all three parties (Subscribers, Businesses, and Investors) simultaneously.

IMO - going public was the way for those at the top to cash out.