Angie’s List – An Ambiguous Investment

Thus far in 2011, many new age Internet companies have filed their respective S-1s hoping to cash in on the Internet stock valuation hype. For those that have already listed, such as LinkedIn, Groupon, and Pandora, their performance on the stock market has left a lot to be desired. The Bloomberg IPO Index, a measure of the performance of stocks during their first publicly traded year, fell 26% this year, compared with a 5% decline in the Standard & Poor’s 500 Index.

Angie’s List’s Financials
One recent addition to the tech IPOs this year was the local business review site, Angie’s List (Nasdaq:ANGI), which began trading in November. During the first nine months of operations this year, Angie’s reported revenues of $62.6 million, compared with $59 million earned a year ago. Losses have increased significantly over the period from $27.2 million last year to $43.2 million for the nine months this year.

Angie’s attributes rising costs to the increased marketing spending required to attract more members. According to their S-1, Angie’s spent $48 million during the first three quarters on advertising and during the same period, reported $24 million in consumer membership fees.

As of September 2011, Angie’s offered services to more than 1 million paid subscribers in 175 local markets in the U.S. These members accessed a database of 550 business and service categories.

Angie’s List’s Expansion Plan
Angie’s continued to focus on the domestic market and is looking to invest the IPO-generated funds into advertising to increase market penetration and revenue per paid membership in their existing markets. They are particularly focused on their “largest potential markets,” which include cities such as New York and Los Angeles.

In addition, they are evaluating expansion into new product categories such as prepaid vouchers for discounts on local services which the company believes will help to increase business to service providers and, they claim, provide them with monetization opportunities.

Angie’s List’s Challenges
Angie’s business strategy still seems to be fraught with problems. They have been in business for the past 16 years and have yet to turn in a profit. Further, they do not seem to be aggressive in adapting their model to some of the more obvious consumer demands. They have not yet made significant progress in the mobile space. Although they have mobile apps for both the iOS and Android platforms, I agree with what Anthony Rodio, CEO of Redbeacon.com, writes in his recent article on Forbes.com; Rodio suggests that viewing a list on a smartphone “doesn’t work very well.” Today, consumers are turning to services like Redbeacon and TaskRabbit where they are able to not only list the nature of service they are looking for but also get an estimate on the price they will have to pay for the service. Angie’s List does not seem to have any competing offering.

Angie’s List stock is trading at $15.61 with a market capitalization of $766 million. The stock touched a high of $18.75 soon after its listing at $13.00.