Angie's List hits life low on weak forecast, cash flow concerns

July 24 Thu Jul 24, 2014 11:37am EDT

July 24 (Reuters) - Shares of Angie's List Inc, a review website, fell about 24 percent to a life low after the company forecast current-quarter revenue below analysts' estimates due to higher spending to sign up customers.

At least six brokerages cut their price targets on the stock, with some raising concerns about the company's cash flow as it faces stiff competition from Yelp Inc and struggles to gain a foothold in the daily deals market dominated by Groupon Inc.

Angie's List, targeted by short-seller Citron Research last year, was the top percentage loser on the Nasdaq on Thursday, with 8.5 million shares changing hands by 1130 ET, more than eight times their 10-day moving average.

Analysts said Angie's List's "Big Deals" product, which offers emailed discounts to members, was failing to attract new customers.

"Big Deals fell short due to a slowdown in email open rates and a decline in the productivity of the sales team," Piper Jaffray analyst Gene Munster wrote in a note.

Angie's List said on Wednesday that it was expanding its sales team and investing in display and mobile advertising to drive growth and cut spending on acquiring customers.

The company's marketing expenses jumped 28 percent in the second quarter ended June 30.

"The company aspires to raise capital, and if no new funding materializes, we see a risk that (Angie's List) could run out of cash absent severe actions," Deutsche Bank analysts wrote in a note.

While Angie's List struggles, Yelp reported a 66 percent jump in its first-quarter revenue. The operator of consumer review website Yelp.com is expected to report second-quarter results next week.

Yelp shares have jumped more than 70 percent in the past year, while Angie's List stock has lost more than half its value.

In May last year, Citron said Angie's List's business model was flawed because the website required reviewers to use their real names, which discouraged negative reviews and led to harassment of those who posted negative feedback on a business. (r.reuters.com/heq77t)

RBC Capital Markets analysts, however, said Angie's List was not a "broken business model but accelerating declines in member monetization and uncertain member acquisition trends raise questions about the total addressable market for a paid membership model."

Of the 16 brokerages covering the stock, 11 have a "hold" rating, 5 have a "buy" and 1 has "strong buy," according to Thomson Reuters data. The median price target on the stock is $12.

Angie's List shares were down 22.2 percent at $7.90 in late morning trading. The stock hit a life low of $7.77 earlier in the session. (Reporting by Abhirup Roy in Bangalore; Editing by Kirti Pandey)

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