Shares of Angie’s List (ANGI, Financial) have been on a roll. The stock has appreciated almost 40% in the last few weeks thanks to the buyout offer by InterActiveCorp. InterActiveCorp placed a bid of $8.75 per share to buy Angie’s List. The deal, surprisingly, was rejected by Angie’s List as the company’s management believes the offered price undermines its true value.
Although InterActiveCorp's offer was $8.75 per share, Angie’s List is currently trading at $10.72. Now that the acquisition deal is off the table, investors should consider shorting Angie’s List after the recent rally.
The stock doesn't deserve its current valuation and will likely fall going forward. Moreover, investors have seemingly forgotten about the company’s terrible earnings report that came out just a few days before InterActiveCorp’s buyout offer.
Angie’s List's earnings beat the Street estimates by 5 cents. However, the company’s slowing revenue growth is alarming. The company’s revenue only jumped 7% year over year to $87 million and missed the analysts’ estimate by almost $2.7 million.
In addition to missing Q3 revenue estimates, Angie's List also cut its full-year revenue guidance to $344 million to $348 million from $357 million to $363 million, falling behind the consensus target range of $351.9 million. For a company that was still supposed to be in the growing phase, the slowdown in revenue growth is alarming and should be enough to put off investors.
Angie’s List has appreciated purely on the basis of the acquisition offer by InterActiveCorp and now that the company has rejected the deal, investors should short the stock as it likely possesses about 30% downside potential.
People are usually reluctant to pay for stuff online. Angie’s List has a subscription-based business model and slowing revenue growth suggests that customers do not want to pay for its subscription. Moreover, this is the reason why rivals such as Yelp (YELP, Financial) and TripAdvisor (TRIP, Financial) are free of cost.
Conclusion
Angie’s List has appreciated on the hopes of an acquisition. Not that the offer is off the table; the company’s stock is likely to move downward going forward. The company is extremely overpriced and is currently trading at over 55x trailing earnings. Given the company’s bad earnings record and falling revenue growth, I think the company will struggle to maintain its growth in the long run. Thus, for the reasons mentioned above, investors should short Angie’s List at the current levels.
