Social media site Angie’s List IPO’d yesterday, and the market now values it at nearly $900 million.
While those are hardly Groupon Bubble numbers, the valuation is still high and more possible evidence of a bubble in social-media companies. So how did the press cover it?
First, a run through some numbers. Skip the next four graphs if you don’t like that stuff.
You can’t do a P/E (price-to-earnings ratio) on Angie’s List. It doesn’t have any “E.” The company has never made money and still loses it big time—$27 million in 2010 and $26 million in the first half of this year alone. That’s on 2010 revenue of $59 million and first half 2011 revenue of $39 million.
Let’s put this another way: Angie’s List took in $39 million in revenue in the first six months of this year and spent $65 million. Ouch. And the pace of losses continued to widen in the third quarter.
By my quick estimate based on current growth, it looks like the company will bring in about $85 million in sales this year. That’s more than 10 times sales.
While its sales are growing fast—41 percent in the first half and 55 percent in the third quarter—it’s worth noting that this is no startup. It’s a sixteen-year-old company.
Needless to say, it’s worth being skeptical of this company’s prospects.
Here’s MarketWatch’s David Weidner on Angie’s List’s debut:
Angie’s List Inc.’s surging debut following its initial public offering tells us that the right company, with the right financials, is still sought after by investors.
It’s almost how it’s supposed to work.
After initial enthusiasm, duds such as Pandora Media Inc. and GroupOn soiled the IPO stage. Pandora is down 24% since its debut and GroupOn never came to market.
I’m going to have to assume that “GroupOn” is the same thing as Groupon, which did indeed come to market two weeks ago. Its shares are up more than 20 percent from the IPO price.
And how does Angie’s List have the “right financials”? No case is made beyond this:
Investors are still willing to buy IPOs as long at they have a proven financial track record and a tangible product.
Never making money and losing increasing amounts of it over sixteen years is a “proven financial track record,” all right.
MarketWatch cousin The Wall Street Journal is better with this skeptical “Overheard”:
That said, as with other social-media stocks, there is still that pesky concept of valuation to deal with: Angie’s more-than-$900 million market capitalization works out to a multiple of about 11 times this year’s likely revenue.
And, in true dot.com fashion, the company forecasts losses for the foreseeable future.
The Journal also had a good curtain-raiser in yesterday’s paper. It emphasizes that the company loses money, and it pulls this eye-raising stat (emphasis mine):
Some analysts expect Angie’s List to trade higher than its IPO price on its first day, like other unprofitable Web companies with large customer lists that have gone public, including Groupon Inc. and Zillow Inc.
But its business model and finances have gotten mixed reviews, partly because of the company’s high costs to advertise for new paying users. Angie’s List increased selling and marketing spending from 63% of revenue in 2009 to 103% in 2011.
In other words, the company is spending more to bring in revenue than it’s getting in actual revenue. That’s a bet on rapidly expanding to new markets, where it hopes those new customers and clients will stick with Angie’s List and marketing costs will fall. Maybe so, but maybe not. It’s a bet (all stocks are to a certain extent, but bear with me), and that’s the point. It’s speculation.
USA Today is also skeptical, in a story about Yelp going public:
Yelp, like Groupon and Angie’s List, is a money-loser, so far. The company, founded in 2004, hasn’t earned a dime since 2006, according to documents filed with the U.S. Securities and Exchange Commission. For its most recently reported period, it lost $7.6 million on revenue of $58.4 million.
The IPO pipeline is beginning to look like it did during the heyday of the dot-com boom in 1999-2000, Fitzgibbon says. That go- go era for dot-com stock presaged the market meltdown.
“If you don’t strike now, who knows what tomorrow will bring,” he says.
Dow Jones Newswires does okay too. Here’s a good analyst quote:
The financial data on Angie’s List “is not good at all, but their brand names awareness is key,” in their debut’s success, said Scott Sweet, managing director of research site IPOBoutique.com. “This is not one in which you park money that you can’t afford to lose. We’re not talking about impressive numbers.”
But Angie’s List hometown paper The Indianapolis Star does a poor job with its story. It mentions the company’s price-to-sales ratio, but doesn’t report anywhere that the company loses scads of money—a baffling omission. It’s particularly bad form since stocks tend to be disproportionately held where companies are located. Time, in talking about the IPO’s “enormous success,” doesn’t mention that the company loses money, either.*
The Los Angeles Times includes a skeptical voice, but doesn’t note that the company is unprotable until the seventh paragraph of its story. Investor’s Business Daily does better, noting it in the third paragraph.
Reuters is pretty good, running with this lede:
Shares of consumer review website Angie’s List surged as much as 44 percent on their market debut Thursday as investors continued to lap up internet offerings, but concerns about the company’s profitability could loom on the stock.
But Bloomberg doesn’t do well, dropping the company’s unprofitability down in the eighth paragraph of a thirteen-paragraph story, and offering no skeptical quotes.
When a company is losing lots of money in the hopes of possibly making money at some unknown-but-distant point in the future, it’s a particularly speculative stock. That’s worth closer attention and a skeptical eye.
* I added the sentence about Time half an hour after originally posting this.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.