Saturday, June 14, 2014

Stay Away from Angie’s List – ANGI Stock Upgrade Is Overly Optimistic

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While most social stocks performed extremely well last year — such as Twitter (TWTR), Facebook (FB), Pandora (P) and LinkedIn (LNKD) — there was one company that got left out: Angie’s List (ANGI).

Since July of 2013, ANGI stock has slid over 45%.

ANGI-StockToday, though, shares of ANGI got a little boost. Angie’s List is up around 6% as of this writing, while shares gained as much as 10% during early trading.

ANGI stock jumped in the wake of a bullish report from Aaron Kessler, an analyst at Raymond James. He upgraded his rating on the stock from "outperform" to "strong buy."

This was based on his view that Angie’s List is poised for stronger sales growth. Keep in mind that ANGI charges consumers subscriptions for access to reviews on service providers like plumbers, carpet cleaners, roofers and so on.

Don’t Bet on ANGI Stock

But Kessler's take is a bit contrarian. Short sellers are swarming around ANGI stock, with a whopping 45% of the float in short positions.

After all, ANGI is facing intense of competition from names like RedBeacon, Google (GOOG), Yelp (YELP) and HomeAdvisor. Even eBay (EBAY) has recently entered the U.S. market. Plus, all these services are free to consumers, which puts ANGI in a tough spot. To deal with this, Angie’s List has been investing aggressively in marketing, especially TV commercials. But that can be expensive.

And already, ANGI has been feeling the pressure. Revenues came to $55.5 million in the most recent quarter, while the loss was 23 cents per share. Meanwhile, Wall Street was looking for a loss of 20 cents per share on revenues of $66.1 million. The outlook was also weak. Angie’s List posted fourth-quarter sales guidance of $68 million to $69 million, while the analyst consensus was for $70.4 million.

While it’s hard to pin down which headwind in particular is causing the weakness, it is always concerning when a subscription-based business sees deceleration. Further erosion is often likely, since there is lots of churn.

Maybe Kessler will be right, and ANGI stock will get its mojo back. But based on the dicey Angie’s List business model, growing competition and weak earnings, his take appears overly optimistic.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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