Angie's List Inc (NASDAQ:ANGI) has seen its price nosedive by 45% in October, showing how quickly the tide can turn for momentum stocks. But while the stock's performance could serve as a potential industry warning, is Angie's List now presenting value?
What happened? Angie's decline was caused by the perfect combination of events. It all started on Sept. 30 when the company disclosed in an 8-K that Chief Technology Officer Manu Thaper was no longer employed. Thaper had been considered important in building the company's brand, with previous roles at MySpace, Yahoo, and Cisco.
Then, the company announced it was running a "reduced-price test" for subscriptions to gauge its impact. As we saw with Netflix a couple years back, sometimes the market views changing subscription prices as a sign of concern.
However, the ultimate stock-crushing moment came on Oct. 23, following Angie's quarterly report . The company slightly missed estimates on both the top line and bottom line, but apparently, given the cautious events before earnings, investors were taking no chances, and shares fell nearly 15%.
As a result, we are now looking at a stock that has fallen from $24 to nearly $13 in less than a month.
Keeping perspective It's good to try and put things in perspective. Angie's List is part of an exciting new class of technology companies that operate through the web. There has been a lot of criticism surrounding Angie's List in recent quarters, as many believe that businesses are not actually rated fairly on their site, and can obtain a higher rating by paying Angie's List.
Nonetheless, when we put all rumors and speculation aside, there are only two numbers that really stick out to me: 56% and 4.3.
For Angie's List, 56% is the rate at which revenue grew year over year in the last quarter, and 4.3 is Angie's multiple on annual sales. Hence, with 56% top-line growth, Angie's List trades at 4.3 times sales.
To put this in perspective, Zynga Inc (NASDAQ:ZNGA) is soaring higher by double digits after reporting third-quarter earnings. However, if you look at the two reports side by side, not knowing the company by name, it's clear who had the better quarter.
In the third quarter, Zynga's bookings (revenue) declined 40% year over year. Moreover, the online game company saw its daily active users decline 49% year over year and saw a 48% drop in research and development spending thanks to job cuts. Yet, despite all of these year-over-year declines, investors are buying the stock, while selling Angie's List.