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ANGI at Risk – How Angie’s List Pricing Shift Poses a Huge Threat to Investors

Angie’s-List ANGIAngie’s List (ANGI) went public in 2011 with high hopes. Its reviews of service providers have a loyal following, and because it touts a subscription-based product, ANGI stock doesn’t have the same challenges that free portals like Yelp (YELP) or TripAdvisor (TRIP) face with a preponderance of fake reviews or the challenge of declining display ad rates and a shift to mobile.

However, the growth story of Angie’s List was seriously called into question this month the Wall Street Journal reported that membership rates in major markets have been cut to $10 from the previous $40 level. Shares of ANGI imploded 14% in a single day on the news.

But now that the dust has settled, should investors in Angie’s List stock worry?

The short answer: You’re darn right you should worry.

ANGI Chasing Growth at Cost of Stability

CEO William Oesterle was quick to state that ANGI is only doing a “reduced-price test” and that it’s not a company-wide policy shift. However, the bears have long argued that a big risk for Angie’s List stock in the long-term is the ceiling on members thanks to the pay-to-play model, and the idea that a slash in rates (and margins) was inevitable.

While Angie’s List hasn’t committed to a wholesale change on pricing, it’s worth worrying right now whether it will make such a move. Because on one hand, it could be bullish — a kind of “bet the farm” maneuver that is intended to offset lost margins with big-time growth.

Of course, on the other hand, it means simply cutting revenue without a shot at replacing it. And even worse, the price “tests” are surely not something that would be voluntarily floated for no reason. Surely ANGI is seeking to juice subscriber growth as a result, because some metrics have indicated slowing momentum that it needs to counteract.

Going into earnings next week, there is at least one Wall Street expert who is bullish. MKM Partners thinks the market is pricing in an earnings miss, but that it’s more likely ANGI will meet expectations on a “clean quarter” that doesn’t reflect any of the current pricing tests. MKM expects Angie’s List shares to rebound to the low $20s and the firm has maintained its $34 price target and “buy” rating on the ANGI shares.

But investors should hardly see this as a long-term thesis for shares. It will be some time before we see whether the test is rolled out in force or whether it really is just an experiment on pricing in select markets.

And of course, we will have to see long-term whether Angie’s List can keep growing — something very necessary to its survival considering the company still is operating deeply in the red despite significant top-line growth.

In short, it’s wait-and-see at ANGI … and unless you feel like leaving the door open to the risk of big failure in pursuit of a big pop if and when Angie’s List can be proven correct with these recent moves, you should consider this Internet stock too hot to handle.

Related Reading on ANGI

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.

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