What: Shares of Angie's List (ANGI) jumped 53.4% in October, according to S&P Capital IQ data, driven by a combination of better-than-expected third-quarter earnings and merger speculation. After lagging the broader market for much of 2015 so far, this rapid increase propelled shares of the local business review specialist well into positive territory.
So what: Shares of Angie's List climbed more than 11% on Oct. 21 after the company revealed third-quarter revenue rose 7% year over year to $87 million. That translated to adjusted EBITDA net income of $0.1 million, marking its first ever profitable third quarter. By comparison, analysts were expecting a net loss of $0.05 per share on higher revenue of $89.7 million.
That said, Angie's List also reduced its full-year 2015 guidance for revenue and adjusted EBITDA. The former wasn't entirely surprising given its third quarter miss on the top line, which itself was driven by a combination of decelerating paid membership growth and lower revenue collected per member.
But perhaps most notably on the latter, Angie's List management partly higher incremental one-time expenses related to its ongoing CEO transition and activist investor activity. More specifically, earlier in the month activist investor TCS Capital Management revealed in a regulatory filing it is pushing Angie's List to merge with IAC Interactive's (IAC) HomeAdvisor.
"[W]ith competition intensifying in the home services industry," IAC's filing elaborated, "it no longer makes sense for Angie's List to remain a stand-alone company."
Now what: Of course, such a merger is hardly guaranteed, so I still think investors would be wise to focus first on Angie's List's plans to achieve sustained profitability as competition continues to ramp. In the near term, those plans include implementing millions in annualized cost reductions in the coming year, scaling its new Angie's List 4.0 platform, releasing a new mobile app for service providers, and consistently making decisions focused on driving better operational execution.
Given the recent increase in share price, however, I'm content watching Angie's List's from the sidelines over the next few quarters until we get a better gauge for just how effective these efforts will be. If Angie's List can prove its business is sustainable without a merger, only then might I revisit it with a long-term perspective in mind.
