Amid losses, Angie's List asks taxpayers for $18.5M

Spurned of late by Wall Street, Angie's List has turned to Indianapolis taxpayers for an investment in the company's future.

A City-County Council panel on Monday will consider up to $18.5 million in public assistance that Angie's officials say is critical to the consumer rating service's planned expansion on the Near-Eastside.

Leaders in both parties say there's a lot to like in the proposal. Angie's promises to add 1,000 jobs, for starters. On top of that, it plans to relocate 800 more to its headquarters on East Washington Street, a run-down corridor that serves as a key gateway to Downtown. And it would transform the old Ford assembly plant back into the economic engine it once was.

In return, the city would spend $9.6 million in tax-increment financing funds to build a parking garage and $6.75 million to relocate an Indianapolis Public Schools warehouse from the Ford building. The $18.5 million bond package would also cover $1.55 million in issuance costs and $600,000 for contingencies.

But ironically for a company that makes its money off of consumer ratings, the biggest hang-up may be others' recent reviews of Angie's.

Since its founding in 1995, the company has never turned an annual profit, a red flag that until recently investors had largely been willing to overlook thanks to steady growth.

But against a backdrop of disappointing earnings, controversies and lawsuits, the company's stock price has plummeted over the last year and a half. It dropped to what was then a record low in July and continued to tumble, settling Thursday at $5.22 per share.

That's less than a third of the $15.80 the stock fetched at its initial public offering.

So ultimately, the questions before the council are these:

Is the prospect of revitalization worth the cost? And should taxpayers be investing in a company that has only turned a single quarterly profit in 20 years?

An 'oasis' in the blight

Vonda O'Neill, 80, remembers how it was.

The good times. The neighbors. The family atmosphere.

The exodus. The blight. The drugs.

By the time Angie's List moved there in 1999, the Holy Cross neighborhood had few businesses left. Company co-founder Angie Hicks recalls a handful of storefronts as you head east from the interstate — Firehouse Photo, a dentist, a party clown business — and then, nothing.

"Once you got past those, they were kind of boarded up and in disarray," she said. "Those three buildings were this little oasis in this space."

The company rented at first, then started snatching up one property after another. Angie's cobbled offices together under whatever roof it could find — the firehouse, old homes, a towing service. Then it would run out of space and buy more.

The effect has been dramatic.

"If you would've told me 10 to 15 years ago, houses would be $295,000 in my neighborhood," O'Neill said, "I would've thought you were crazy."

It's not perfect; the Indy Land Bank lists as many as 37 vacant properties in the area. But for the first time in decades, said O'Neill, a lifelong resident, the neighborhood has life again.

People walk their dogs. Angie's employees go for strolls past her porch. New homes are going up and old ones are being renewed. Residents are neighbors again.

"Now we have 75-100 people come to our neighborhood meetings," O'Neill said. "It hasn't just changed a little — it's changed a whole lot."

The profit problem

But during that time one thing hasn't changed: the company's inability to turn a profit.

Even in 2012, investors were showing signs of impatience with the company's lack of profits, shedding stock as Angie's posted one quarterly loss after another. But analysts were still bullish on the company's prospects.

The thinking at the time? Despite the losses, the company was still growing. Huge investments in marketing efforts were translating into more and more memberships.

And that summer, Angie's was outperforming other web services that went public at around the same time. In August 2012, Angie's stock price was still within 1 percent of its IPO value, while Facebook and Groupon saw their stock plummet by 43 and 63 percent, respectively.

The growth has continued. This year, the company eclipsed 3 million members for the first time. And its revenues are soaring. The $81.3 million it generated in the third quarter of 2014 was up 24 percent year over year.

So why is the company now trading at record lows?

There were lawsuits. In 2012, a member filed a class action suit claiming the company charged her higher-than-expected renewal fees without warning; Angie's settled for $2.8 million. In 2013, another class action filing claimed Angie's executives misled shareholders by cutting membership rates to artificially inflate the company's number of subscribers.

There was bad press. In 2013, Angie's came under fire for accepting a growing amount of paid advertising from the very companies for which it is trusted to publish unbiased reviews.

And there were disappointing returns. While the company's third quarter 2014 net loss of $5.2 million was a 61 percent improvement from that same time a year earlier, it still fared worse than Wall Street expectations. According to Forbes, analysts had expected a loss of close to 2-cents per share; the actual loss was 9 cents a share.

Company officials downplay the profit problem, pointing to other web firms as examples.

Social media service LinkedIn, which has become ubiquitous for job networking in many industries, was founded in 2002 but didn't turn a profit until 2010. The Pandora Internet radio service has 20 million registered users and growing, but is losing money.

Through three quarters of 2014, Pandora had posted a net loss of $42.7 million. Its stock has been on a similar downward trajectory as Angie's over the last year, but is still up 28 percent vs. its 2012 IPO.

Mark Howell, Angie's chief operating officer, insists company executives remain confident in their growth trends – otherwise they wouldn't be adding staff.

And, despite a 97-employee layoff that Howell characterized as a restructuring of the sales staff, Angie's is doing just that. As of Friday, 105 job openings were posted on its website.

"I think it would certainly point to the credibility of what we expect to be growth in employees," Howell said.

Council encouraged

City-County Council members are well aware of the financial concerns. But they also speak glowingly of the proposal — and of what Angie's has done for the community already.

"They have long been a stabilizing force in that quadrant along Washington Street, which is, by and large, just riddled with abandoned, boarded-up buildings," said Councilman Zach Adamson, a Democrat who represents the district. "What we're trying to do on the Near Eastside is make sure that there is something between (Downtown) and Irvington."

Democratic Vice President John Barth and Republican Leader Michael McQuillen both say they're encouraged by what they've seen so far. Still, they caution that the details must be vetted in committee.

Here's how the deal shakes out:

Angie's would sink $40 million into the expansion, relocating 800 employees from various satellite offices and hiring 1,000 new employees over the next few years. That would leave Angie's List with 2,800 Indianapolis employees in all. Angie's investment includes about $4.5 million for the garage.

"The one thing I think people haven't spend enough time talking about, that Ford building is an iconic landmark in this city," Howell said. "It's celebrating its 100th anniversary this year. There is a tremendous amount of important kind of cultural legacy, Indiana roots tied up with that building.

"To take that 100-year-old building and make that a cornerstone ... I think there's a symmetry there that has been lost. What automotive did 100 years ago in Indianapolis, technology now has the ability to do that."

In addition to the city's contribution of up to $18.5 million, the state also would chip in $6.5 million in tax credits and $500,000 in training grants.

And if Angie's fails?

There's some benchmarks the company has to meet to qualify for the tax incentives. But no matter how many safeguards are in place, there is still some risk; the city, for instance, could be stuck with a white elephant parking garage.

Still, if the Ford building is ever going to be restored to use, Howell reasoned, it will need parking no matter who the tenant is.

If the council balks, Angie's will still add employees, but they likely won't work on the Near Eastside. They could spread employees to offices around the city, as they do now. Howell said they could also look to the suburbs for cheaper office space, where parking wouldn't be an issue. Or — to another state entirely.

"I think our responsibility would be to look at the needs of the business and the economics of such a move," Howell said, "but that is certainly not our desire or our intent.

"We have a huge bias for Indianapolis. We have a huge bias for an urban environment; we have a huge bias for a single-campus solution."

At Monday's 5:30 p.m. Metropolitan and Economic Development hearing, they'll find out to what extent the feeling is mutual.

Call Star reporter Brian Eason at (317) 444-6129. Follow him on Twitter: @brianeason.