This Just In: More Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." While the pinstripe-and-wingtip crowd is entitled to its opinions, we've got some pretty sharp stock pickers down here on Main Street, too. (And we're not always impressed with how Wall Street does its job.)

Given this, perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We also show you whether they know what they're talking about.

And now, for a few words from your sponsors
When Angie's List (NAS: ANGI) went public last year, it led off its prospectus with this quote from company founder Angie Hicks: "My favorite thing about Angie's List is the reviews come from real people."

Sadly, now that corporations have been anointed "people" by the Supreme Court, these same people don't have particularly glowing things to say about Angie's List itself. This morning, the gags came off the eight firms that helped to bring the Indianapolis business-rater public, and so far, the reviews aren't particularly good:

  • Bank of America: Neutral, with a $18 price target.

  • RBC Capital: "Sector perform," with a $17 target.

  • Oppenheimer: "Perform," at a target set at $16.

Oh, there were "buy" ratings as well. Stifel Nicolaus, ThinkEquity, and Janney Capital all told investors to go ahead and buy the stock -- but that's only to be expected from its IPO backers. Three buy ratings out of a possible eight (we have yet to hear from CODE Advisors or Allen & Co., which also participated in the IPO) is hardly a ringing endorsement of the IPO. Even more so when you observe that Angie's List's lead underwriter (B of A) is sitting in the undecided camp.

"Angie, Angie, when will those clouds all disappear?" -- Rolling Stones, "Angie"
What will it take to bring around Angie's supposed friends and convert them into fans? I'm honestly not sure, because the problems Angie has won't disappear any time soon. Chief among them, I worry, is the fact that there's just an awful lot of competition in the "rating things" space. It doesn't take more than a few minutes on Yahoo! to locate reviews for 'most any business you can name. And for all that Angie's List declares its reviews are from "real people," most of the reviews on Yahoo! Local look pretty real to me.

And the competition is only getting worse. Facebook's due to IPO any month now. Yelp, too. Two other recent IPOs to which expanding into home "contractor" reviews would seem a natural evolution -- Zillow and Groupon -- are already out there and flush with IPO cash. And there's the ever-present threat from Craigslist, in which eBay (NAS: EBAY) owns a sizable interest. Any or all of these firms looks to be either a present or future competitor to Angie's List.

"Angie ... With no lovin' in our soul and no money in our coats, you can't say we're satisfied"
Perhaps the most worrisome thing about Angie's business, though, isn't the businesses it must compete with -- but its own failure to succeed particularly well as a business. Sixteen years after the company's founding, Angie's List still isn't profitable. To the contrary, over the past year Angie lost more than $51 million -- its biggest reported annual loss ever. And while the company succeeded in raising upward of $110 million from its November IPO, at current burn rates, Angie could run through that cash in as little as three years.

Foolish takeaway
Still trading above its IPO price, and valued at three-quarters of a billion dollars, Angie's List looks less like a viable business, and more like an exercise in futility. That's why right now, today, I'm going to do the bankers one better: Instead of assigning a wishy-washy "neutral" or "market perform" rating to Angie's List, I'm going over to Motley Fool CAPS to publicly predict that this stock will underperform the S&P 500.

I'd suggest you do the same. Otherwise, to paraphrase the Stones one last time: "All the dreams you hold so close, will all go up in smoke."

At the time thisarticle was published Fool contributor Rich Smith does not own shares of, nor is he short, any company mentioned above. To read his write-up on Angie's List, and see his other 56 active stock recommendations, visit Motley Fool CAPS and look for him under the handle "TMFDitty" -- currently ranked No. 356 out of more than 180,000 members.The Motley Fool owns shares of Yahoo!. Motley Fool newsletter services have recommended buying shares of Zillow, eBay, and Yahoo!. Motley Fool newsletter services have recommended writing puts in eBay. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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