Shares of Angie's List (Nasdaq: ANGI ) are soaring today, up more than 30% on heavy volume. Is anyone else concerned by this?
I hadn't heard of this consumer reviews website before last week, and that's only because I was checking an IPO calendar for new issues. My wife, a diligent shopper of services, also hadn't heard of the site.
Yet visibility is only part of the problem. Angie's List is a 16-year-old dot-com survivor that still isn't profitable. Operating losses have ranged from $8.6 million in 2009, to $23.1 million last year, and $38.8 million through the first nine months of 2011.
Cash flow has also proven elusive. "Since inception, we have financed our operations primarily through private sales of equity and, to a lesser extent, from borrowings," management says in the prospectus.
Numbers back this up. Cash from operations, or CFO, has run negative in each of the past three fiscal years, while the latest numbers show the burn rate increasing. The company's CFO deficit increased more than four times over the trailing nine months, to a loss of $23.7 million.
This means Angie's List doesn't generate enough cash to fund everyday needs, let alone pay for capital improvements to grow the business. Investors and debt holders are footing the bill for keeping the lights on.
By contrast, HomeAway (Nasdaq: AWAY ) , another recent IPO and directory -- of vacation home listings rather than services -- has taken in more than $30 million in net free cash flow after factoring in working capital needs, currency effects, and capital expenditures.
Hello? Competitive advantage? Are you there?
To me, these numbers suggest heavy investment in a business that possesses no discernible competitive advantage versus Google (Nasdaq: GOOG ) , Yelp, and Foursquare. All three of these competitive services are free and include reviews and tips in their business directories. Foursquare and Yelp, in particular, offer location-aware listings to give users intel on businesses near them, even while on the go.
Angie's List differentiates itself in two ways. First, the directory is focused on service providers and medical professionals. Second, Angie's List doesn't allow companies to buy premium paid listings, nor does it permit anonymous reviews. Both features are surely useful to the 1 million paid subscribers to the service. But do they represent a sustainable edge? I'm not so sure.
For one thing, I don't care if the first listing at Google is a sponsored link. If customers post positive reviews regardless, I'm interested. And negative reviews are just as valuable whether they come anonymously or not. What matters is how business owners respond.
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