From Unicorn To Unicorpse: Angie’s List Should Accept IAC’s Acquisition Offer

In the IPO rush of 2011, several new age Internet companies went public hoping to cash in on the valuation hype. Local business reviews site Angie’s List (NASDAQ: ANGI) was one of them. In November 2011, its stock touched a high of $18.75 and a billion dollar valuation soon after its listing at $13.00. Since then, its all-time high was $28.32 in April 2013 when its market cap was around $1.5 billion. But this year, amid tough competition from the likes of Amazon and Thumbtack and skepticism about the lack of profits and high marketing costs, its stock price dipped to an all-time low of $3.73 and market cap of about $240 million, making it a unicorpse*. It has since recovered a bit, and is currently trading around $10 with a market cap of about $550 million.

Angie’s List was founded in 1995 by William S. Oesterle and Angie Hicks. It started off as a call-in service to get reviews and information on service providers. By 1999, they had moved online. In 2010, before their IPO, they had revenue of $59 million and over 600,000 paying members in 175 local markets but had a loss of $27 million and a high marketing cost per paid membership of $85. But unlike many other internet startups, at least it had a revenue model.

However, Angie’s List did not rise up to its potential and adapt fast enough to the changing market and consumer demands. They were not aggressive enough in adapting to mobile and competition toughened up. Competitors like Redbeacon, TaskRabbit, Yelp, Amazon, Google, and Thumbtack have over time eroded its edge.

Other challenges with its business model were that reviewers had to use their real names, making them susceptible to harassment from businesses and discouraging them from posting negative feedback. Also, Internet users are typically reluctant to pay for services, which adds to the challenge of increasing paid membership.

At a time when its focus should have been on improving its business model and services, it was spending heavily on customer acquisition with hardly any uptick in new paid member sign ups. As a result, profits remained elusive. It reported revenues of $90 million in 2011, $156 million in 2012, $245 million in 2013, and $315 million in 2014. Its net loss was $49 million in 2011, $53 million in 2012, $33 million in 2013, and $12 million in 2014.

In April this year, William Oesterle stepped down as the CEO. In September, former Best Buy executive Scott Durchslag was hired as the new CEO. Last month, IAC made an acquisition offer of $512 million at $8.75 per share. It had earlier offered $8.5 per share. However, Angie’s List rejected the offer saying that the offer is too low. It is currently trading around $9 with a market cap of about $530 million.

With improved efficiencies and its first profitable quarter in its 20-year history as well as a new CEO at its helm, Angie’s List feels it is grossly undervalued at $512 million. Its third quarter revenue was up 7% to $87 and net income was $0.1 million, an improvement from a net loss of $5.2 million a year ago. It has identified $10 million in cost reductions, redesigned the sales force, baselined Net Promoter Scores, changed media agencies, shifted ad spend toward digital channels, and began scaling its new Angie’s List 4.0 platform nationally.

I am not convinced that the company is undervalued. It has a difficult business model, high customer acquisition costs, and terrible profitability metrics.

They should take IAC’s offer.

* The term Unicorpse was first coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

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