Marketing Spending Gobbling Up Increased Revenues At Angie’s List

It is not just the recently listed online review site Yelp that is finding it hard to turn profitable. In 16 years of operations, the subscriber model–based review site Angie’s List (Nasdaq:ANGI) has not yet managed to turn in a profit. Some analysts believe that it may be among the worst tech IPOs to list in 2011.

Angie’s List’s Financials
Angie’s List saw Q4 revenues grew 70% over the year to $27.4 million, compared with market estimates of $25.4 million. Paid membership grew 78% to 1.07 million members, and the company added more than 9,000 service providers to their list during the quarter to provide reviews in more than 170 markets. The customer retention rate also grew 75% for the quarter. Despite these impressive operating metrics, the subscribers-only review site reported a loss of $0.14 per share, compared with a loss of $0.11 projected by the Street.

By segment, revenues from service providers grew from $9.4 million last year to $17.7 million, and membership revenues grew 45% over the year to $9.7 million.

They ended the year with revenues growing 53% to $90 million, with losses increasing 62% to $1.60 per share.

For Angie’s List, revenues aren’t as much a concern.  They project current quarter revenues of $29 million-$30 million, ahead of the Street’s target of $28.3 million. More worrisome is that Angie’s List’s losses continue to grow. These losses are attributed to increased spending on marketing campaigns. As part of their marketing spend, Angie’s List has been spending significantly on TV ads. To be sure, with membership and customer retention rates on the rise, the advertising seems to have been beneficial. Apart from ads, Angie’s List has launched several deals with daily deal site Groupon to offer consumers their subscription services at nearly half the standard rate.

During the current quarter, they plan to spend $17.5 million-$18 million on marketing, a sum that is 68% of their fiscal 2011 marketing spending and $4 million more than what they spent on marketing in 2010. The Street expects that Angie’s List will continue to report losses this year and projects a loss of $0.79 per share for the year, with losses of $0.26 per share to continue to 2013.

Like Yelp, Angie’s List is struggling to find ways to monetize their consumer base. Although increased marketing may be bringing in more revenue, it is a short-term fix to improving the quality of the customer base, and they need to figure out a long-term approach to ensuring better monetization.

Angie’s List is trading at $16.80 with a market capitalization of $958.5 million. The stock touched a 52-week high of $18.75 soon after its listing in November 2011.