Hey guys it has been a while since I have been on here but wanted to get some different opinions on this. I have been following Angie’s List (ANGI) for a while now and think that it makes a compelling short.
Angie’s List has never made money since its founding and management has said that it will continue to incur losses to finance the growth of the business. The main reason I am thinking that the timing could be right to short this stock is because the growth is starting to slow.
Angie’s List earns revenue three ways, by consumer membership (paid yearly memberships) and service provider revenue (paid memberships by contractors) and advertising. Their metrics of /paid membership is decreasing and their /paid membership for service provider revenue is decreasing. Their marketing cost per paid membership acquisition continues to increase and gross paid memberships added per period continues to decline. These are troubling ratios and metrics for a company that is in a “grow at all costs” mode.
The following are some of their income statement and balance sheet metrics (as of Q3): Revenue increased 41% A/R increased 87% A/P increased 77% Accrued liabilities increased 120% Deferred membership revenue increased at 61% EBITDA losses increasing from quarter to quarter
More troubling trends, their liabilities and deferrals are increasing at a much faster pace that their revenue and assets.
A couple of other things to note: - Company recently purchased a new headquarters building from the affiliate of the CEO for approximately $6.25 million - Company does not provide statement of cash flows with earnings release
I am not going into detail about their cash burn but it looks like they have enough cash to operate for the next year and a half or two. I don’t think the value of this company is zero because Google did offer to buy their business a couple years ago, so I would think they would get a buyout offer if things got really bad, but I would think that a more rational price would be 1-2x sales which would be anywhere from $3-5.
Anyway wanted to get some feedback from you guys. I have a position in the August 2013 $7.50 puts and haven’t decided whether or not to increase it.
I’m pretty sure this business eventually runs into the ground, but shares will appreciate as long as investors buy into the top-line growth story. Shares can run for a while based on this until the trend finally breaks. Shares sold of earlier when this pretty compelling report came out in July 2012 that touched upon a lot of the points you mentioned.
What you’re missing in your thesis about why you think now is an opportunity to short the stock that didn’t exist before. But for a company that has a 1.5-2.0 year cash burn runway according to your estmiates, that’s still a fair amount of time for the company to stay solvent not to mention that as long as the top-line story remains interesting to investors, they can still tap the equity markets for secondary capital.
I’m not an expert in the ANGI name by any means but have followed it because it is a popular short in the hedge fund community, and what I’ve cited here are potential risks to your short.
Thanks for the responses so far guys. The main reason that now is the right time is that I think their growth is going to slow. Their revenue is still increasing but they have to spend more and more money advertising to keep that revenue growth. I don’t think it is sustainable because they do not have the money to keep increasing their marketing costs. At some point they will have to come to the realization that they are not getting a return for the money they are spending on advertising and their own metrics for which they evaluate their business prove it. I do think that another secondary offering is a big near term risk. It probably makes sense to hold this position until they report their year end numbers and then reevaluate then.