Angie’s List Inc (ANGI): Slam!

Angie’s List Inc (NASDAQ:ANGI) appeals to the buyer beware in all of us. The company has made a business out of reviews you can, supposedly, trust. In late 2011, the company debuted on the public markets and has since rewarded investors with a more than 40% return, all while unable to post a positive bottom line. However, sales growth over that same time has skyrocketed more than 160%. While the business sounds innocent enough, a recent hit piece from Citron Research sent the stock down nearly seven points for the week. The question is: Does the exhaustive research report highlight anything that investors weren’t already aware of? Let’s take a look and see if Angie’s List Inc (NASDAQ:ANGI) is a stock you should avoid.

Slam!
Citron Research is notorious for issuing scathing reports on a wide array of companies from Chinese mid caps to Intuitive Surgical. Opinions vary on the accuracy and integrity of the short-seller shop, but one cannot deny their influential prose and shocking statistics. As a public business, a Citron slam piece is one of the last things you want to deal with.

The title of Citron’s report on Angie’s List Inc (NASDAQ:ANGI) leaves nothing to the imagination: Bad Idea + Bad Business = Wall Street Fiction. In the piece, the firm argues that, at best, Angie’s List Inc (NASDAQ:ANGI) is worth $6 per share — a far cry from today’s $23 price point. The synopsis is as following:

Angie’s List Inc (NASDAQ:ANGI) has a terrible reputation among its customers, both end users and businesses. Customers have a hard time canceling memberships and question the integrity of the listings. Most listed businesses have an “A” grade, and seemingly anyone can apply for a listing without any due diligence on behalf of Angie’s List Inc (NASDAQ:ANGI). Businesses complain that they have to pay up for placement (in the $000s) and that it resembles a pyramid scheme.

The company has increased its sales professionals with an inadequate return in terms of new customers (around 1.14 customers per month, per sales person).

Companies like Yelp Inc (NYSE:YELP) have much greater scale and are free of charge to customers. Even though they are not quite in the same space (Angie’s List focuses on home repair, dentists, trained professionals, etc), Citron believes Angie’s moat is nonexistent.

When compared to peers, such as Interactive Corp-owned Home Advisors, Angie’s List is far, far overvalued.

Here is the report, if you’d like to read through the details.