Wall Street has been in a foul mood over Internet stocks, and online professional recommendation company Angie’s List has not escape the market’s wrath. Its stock fell 15 percent on Tuesday — a selloff that appears to be largely related to the end of a 90-day lockup period for shares issued in a secondary offering earlier this year.
This alone is not necessarily a blanket rejection from Wall Street.
“It’s not completely uncommon to see drops like we saw in Angie’s List after a lockup period expires,” Andrew Thrasher, an investment analyst with Financial Enhancement Group, told the E-Commerce Times.
“You essentially have a built-in group of potential sellers who have had to sit on the sidelines since the IPO — and in Angie’s List’s case, that amounts to 44 percent of common share ownership,” he explained.
Still, Angie’s List stock could hardly be called a high-performer. Since going public in November 2011 at US$13 per share, it has fallen 13 percent. After the selloff on Tuesday, the stock closed at $11.17 per share.
Bad Company
At least some of this can be attributed to the company Angie’s List keeps — that is, it is among a handful of Internet companies that went public last year amid much fanfare and eventually lost their allure. Facebook and Groupon — but not LinkedIn, which is proving to be an exception — fall into this category.
“Social media stocks have been out of fashion as of late, with companies like Facebook down over 40 percent and Groupon down over 70 percent year to date,” Thrasher said.
“When a company like Angie’s List is unable to earn a profit in 17 years, it’s not hard to imagine why investors would feel the way they apparently do towards the stock,” he remarked.
The Trust Intangible
Angie’s List, which has been heavily advertising its services on television, online and in magazines for the last several months, has a straightforward business model: It recommends all kinds of local service providers for home maintenance and other consumer needs. It recently added recommendations of doctors, dentists and holistic health providers to the mix.
Customers can post reviews about the quality of service they received on the site. Angie’s List gets its revenue from the user subscription fees and vendor advertising.
Besides having a straightforward business model, Angie’s List has managed to carve out a niche for itself as an “honest broker” in a space where manipulation and abuse run rampant. Consumers have a high level of trust in the recommendations, and the service providers are loath to do anything to tarnish their reputation on the site.
Not everyone is sold on the model though, or believes in its “honest broker” reputation.
“Angie’s claims it is different because the pay-for-advice nature of the service results in better quality reviews,” Robert Steinberg, chair of the mergers and acquisitions group with Jeffer Mangels Butler & Mitchell, told the E-Commerce Times.
“As a consumer, I’m not sure that this is true. The reviews are still subjective — still subject to bias of users, and still subject to some manipulation, e.g., a service provider ‘sponsors’ reviewers to give good reviews.”
Free Is the Competition
Worse, though, is the fact that Angie’s List’s competition is similar services that are free, Steinberg continued.
“As has been the problem for newspapers, music publishers and other services — charging for things that people are used to getting for free is not a winning business model unless you can show what is offered is substantially superior to the free version,” he pointed out.
“It is especially hard when the service is not clearly superior,” said Steinberg. “Angie’s List reviews are not clearly better or worse than any other reviews, and unless they can prove this and prove that the service is significantly more valuable than what is available for free, they face an uphill fight.”
An Overvalued IPO
Angie List’s is also struggling with the legacy of its IPO, as the fallout from the secondary offering illustrates. The original valuation “was ridiculous,” Steinberg said.
“They went public at a market cap of about $750 million with a huge operating and net loss and annual revenues of less than $100 million,” he observed. ” Moreover, they have never been profitable and have shown increasing losses as revenues increased.”
Essentially, the stock could only stay at its IPO valuation if everything went perfectly in terms of business execution, he said, but “expiration of lockups this week only exacerbated the situation.”
Angie’s List did not respond to our request for further details.
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Angie’s List deserves a wallop on Wall Street.
I have years of experience with Angie’s List as a local plumber in Seattle. They have gotten money out of me and gave nothing in return except much trouble from customers that tend to be pretty passive aggressive. Angie’s List get paid on both ends – Any contractor listing you see is only visible to you if the contractor is paying Angie’s List through the nose. My cost for Angie’s List "hot leads" was $300 each. Testing Angie’s List cost me $7000 over two years. While paying such high costs for leads may work for a major construction project , it won’t work for a service call where we charge by the 1/4 hour.
Google clicks have gotten as high as $38 per click here in Seattle when the search term used is "plumber" or "plumbing". On the average it takes 15 clicks to get a call. Do the math on the cost to the guy ringing your doorbell.
Angie’s List cost per job performed was 75% of my company’s average invoice total (about $400). My company does over a thousand jobs a year.
Any homeowner service using this advertising method is paying way too much to maintain any integrity in the service. This type of advertising creating an incredible AM ount of pressure to convert to a commission-based high profit business model for basic traditional services. If I pay Angies List hundreds of dollars just to ring your doorbell how can I treat you fairly when your plumbing problem requires an hours work? I can’t so I cancelled my advertising contract with Angies List.
Angie’s List uses a unique money making model that actually is a kind of pyramid scheme. They put all the local harvested contractors into their listings but you only will call highly rated ones. In order to be highly rated you must pay Angie Thousands of dollars a year for position in order to be seen AND time in grade is required to accumulate favorable reviews. Only a dozen or so can be in that position. The homeowner only calls the ones at the top so all new advertisers must invest thousands on continuing annual contracts to play the game on Angie’s List.
My solution was to put up a free local business directory with the policy of no shills, no fake listings, no paid advertising just so my neighbors and the local small businesses here in Seattle could find each other. (www.SeattleOnly.com) It may take a while for the new directory to get any real traffic as it is dependent upon local participation by local businesses and consumers.
In my opinion, it is time for both local business and consumers to get control over how we find our services and customers as the marketers are hijacking the business to consumer relationship and forcing costs so high that nobody can bear the costs.
Question: Why should we need out-of-state corporations to connect homeowners to services down the street? Surely there is a simple, inexpensive way for us to know our neighbors and small businesses. We all need to put a little thought and effort in that direction.