Investors gave Angie’s List a bad review Wednesday, as disappointing third quarter earnings sent the stock plummeting more than 18%.
For a company that has never seen a profitable year, the question for investors wasn't if
Wednesday's stock slide signals investors are dialing back expectations for when profits will actually materialize, says Needham & Co. analyst Kerry Rice. The company is struggling to attract a critical mass of customers and businesses – both of which pay subscription fees to Angie’s List – without pouring excessive amounts of money into marketing.
“I don’t take any of this to mean that Angie’s list is failing as a company,” Rice says. “It’s more a question about timing and how fast the company can grow and become profitable.”
Revenue growth isn't the problem, as Angie's List posted 24% higher sales from a year ago at $81.3 million. Expenses are down slightly too, as the company spent spent $22.5 million on marketing in the third quarter, a decline of 20% over last year, bringing the acquisition cost per new member down 16%. The problem is the pace of membership growth fell too, with new membership additions down 6% from the prior year.
Angie’s List is focusing special attention on cutting down the cost of attracting businesses as new members. Companies' subscription fees make up about 78% of the online marketplace’s revenues. The company’s efforts include focusing sales reps on specific business categories, such as pest control and plumbing, and hiring more experienced service providers to handle the most important accounts, CEO William Oesterle explained on Angie's List's earnings call.
“Building a marketplace business is hard work, and we are in the heavy-lifting phase,” Oesterle said.
Shares of Angie's list fell 18.2% to $6.77 Wednesday.
The company’s stock has been steadily declining since mid-2013, when Angie's List traded at as high as $28 per share. One major headwind has been the planned entry of Amazon into the local services marketplace, as well as competition from
