Angie’s List IPO On Track, Monetization Needs Attention

The bearish market trend isn’t deterring internet players from filing for an IPO. Local business review site, Angie’s List was among the latest to file in their S-1 for a listing. The company plans to raise $75 million through the stock exchange listing, most of which is expected to be used for advertising and general corporate expenses.

Angie’s List’s Financials
While Angie’s List may have built a wide market reach, profitability remains a big challenge. For 2010, the company earned revenues of $59 million and amassed a net loss of $27 million. Revenues from paid members amounted to $25.1 million last year, while revenues from service providers came in at $33.9 million. For the first half of the current year, the company reported revenues of $38.6 million and a net loss of $25.8 million. A year ago, they had suffered a loss of $11 million on revenues of $27.4 million. Despite revenue growth of 40% during the period, their loss widened because of a meteoric 89% rise in marketing expenses.

As of June 2011, they had more than 820,000 paying customers in the U.S. accessing more than 2.2 million reviews. Angie’s List requires that service providers maintain an average rating of A or B to be able to advertise on their website. Of the 761,000 service providers reviewed on their website, more than 192,000 were eligible to advertise. But of those, a mere 10% service providers were in fact advertising on the site. Revenues breakdown of these two segments for the first half of this year is not known.

Angie’s List’s Domestic Expansion
Unlike many other Internet players that are focusing on international growth, Angie’s List has been focusing on domestic market expansion. They claim to be present in 200 markets in the country  and to earn revenues from over 170 markets. During the first few months of launch in a market, Angie’s List does not charge subscription fees from members in the market. To cater to their expansion, they also announced plans to add another 500 jobs by 2015 to their Indianapolis operations.

Angie’s List hopes to get a bigger pie of the local search and review market, which is estimated to be worth $459 million by the year 2015. The biggest challenge remains their ability to scale up. As of now, Angie’s List is focused on attracting more customers through bigger advertising and marketing spend. I fear that they may be following Groupon’s path of expansion at ridiculous costs without enforcing the discipline of monetization.