Angie’s List Inc., the consumer- review website with more than 1 million paying members, surged 25 percent in its trading debut after raising $114 million in an initial public offering.
Trading on the Nasdaq Stock Market under the symbol ANGI, Angie’s List climbed to $16.26 as of 4 p.m. New York time. The Indianapolis-based company sold 8.8 million shares, about 16 percent of its outstanding stock, for $13 apiece, the top of the proposed range.
On its second day of trading, Friday, November 18, 2011, Angie's list list $0.46 to close at $15.80.
Angie’s List, which provides reviews of plumbers, electricians and other service providers, follows the success of Internet peer Groupon Inc.’s IPO this month. The Chicago-based online-coupon leader raised $700 million Nov. 3, 30 percent more than it sought, after pricing the shares above the marketed range. The stock surged 31 percent in its trading debut and had gained 20 percent since the IPO as of yesterday.
Angie Hicks, founder of Angie's List
Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco said.
“The market for entering IPOs appears to be cracking back open. This is a good first day for a smaller- scale IPO, and that could give other companies confidence.”
The IPO price valued Angie’s List at more than $900 million, or about 11 times sales in the 12 months through September. That compares with Google Inc., which trades at about 5.4 times trailing 12-month sales and is named as a competitor in the Angie’s List filing. Groupon, also named as competition, trades at about 12 times sales in the same period.
Confidence Rebound
Groupon sold 35 million shares at $20 each. Its stock soared 31 percent to $26.11 on its first day of trading on Nov. 4. The gains reflected rising optimism concerning IPOs after market volatility earlier this year persuaded many startups to delay initial share sales, resulting in the biggest IPO backlog since 2000.
Delphi Automotive Plc, the former auto-parts unit of General Motors Co. (GM), also completed an IPO yesterday, raising $530 million after pricing at the lower end of its proposed range.
Revenue at Angie’s List increased 46 percent to $62.6 million in the nine months ended Sept. 30 compared with the year-earlier period, the filing shows. Its net loss widened to $43.2 million from about $19 million.
The company planned to sell about 6.3 million shares in the offering, with the remaining 2.5 million sold by existing shareholders, according to the prospectus. Battery Ventures had planned to reduce its stake to 15 percent from 18 percent, while BV Capital was paring its stake to 9.3 percent from 12 percent.
Membership Plans
The site was started in 1995 by Angie Hicks, who was the company’s president until 1998, when she took a leave of absence to get a master’s in business administration from Harvard University. Hicks, now chief marketing officer, intended to trim her stake to 1.5 percent from 1.8 percent, the filing shows.
Angie’s List establishes new markets by offering free memberships, according to its prospectus, and begins charging fees usually within 24 months. The company had 175 paid markets as of Sept. 30, compared with 45 in January 2008.
In New York City, Angie’s List memberships cost from $3.25 to $5.20 monthly or $29 to $46.40 a year, according to the website. The company has also offered promotional discounts in partnership with Groupon. Cheryl Reed, a spokeswoman for Angie’s List, didn’t immediately return phone calls seeking information about the company’s pricing plans.
Angie’s List plans to use net proceeds from the offering to fund advertising and increase membership, the filing shows. Bank of America Corp. (BAC) led the offering.
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Yelp Files Its IPO
Yelp Inc., a fellow consumer-review site operator, filed their S-1 Registration Statement for their IPO to raise $100 million.
San Francisco-based Yelp said in a filing with the Securities and Exchange Commission that it plans to see its shares traded under the ticker "YELP."
Yelp provides local listings of restaurants, bars and other venues, alongside reviews written by the site's users. The company offers reviews in dozens of U.S. cities, in addition to locations overseas, and relies on online advertising for revenue.
Founded in 2004, Yelp said in the filing that it now has over 22 million reviews, and that an average of 61 million visitors used the site on a monthly basis in the quarter ended in September.
The company also disclosed that it has been consistently unprofitable in recent years, even as revenue has risen significantly.
Yelp reported a net loss of $9.6 million last year, and a loss of $7.6 million for the first nine months of this year. The company said it had an accumulated deficit of roughly $32.1 million as of Sept. 30.
Revenue rose to $58.4 million in the first nine months of this year, Yelp reported, compared to $32.5 million in the same period last year.
Behind the two unprofitable companies' valuations are remarkably different approaches toward bringing small local businesses online and profiting from Internet content.
The differences underscore how—more than 15 years after the dawn of the Internet era—some business debates about the Web haven't been settled, including whether to charge for content and how to make user-generated content reliable.
Differences Between Angie's List and Yelp Business Models
Angie's List is a niche business that charges its one million U.S. users from $3 to $6 a month to access and post their reviews of building contractors, doctors and more.
The site has limited its audience but forged close ties with merchants by closing itself off from the public and verifying the legitimacy of subscriber-generated reviews. A growing portion of its more than $59 million in annual revenue comes from selling ads to the site's top-rated businesses.
Yelp, by contrast, has become one of the Web's most popular sites in the U.S. with a free service that allows even anonymous users to read and post reviews of restaurants, hardware stores and other businesses.
Jeremy Stoppelman, co-founder and chief executive officer of Yelp
The company relies on ads from local businesses and national brands for revenue, but it has angered some merchants, who claim that reviews can be stacked against them and who want more control over their public online personas.
Greg Sterling, a senior analyst at research firm Opus Research says.
"Both can coexist. It's harder for Angie's List in a way, because people prefer free. But there's also a way... in a world of noise [that] Angie's List represents a kind of refuge where people can come and have some faith."
The closed-system approach of Angie's List's is partly a result of its roots far from Silicon Valley. The Indianapolis-based company was co-founded in 1995 by then 22-year-old Angie Hicks as a call-in review service answered by Ms. Hicks herself. It didn't move online until 1999.
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Ms. Hicks said in a 2010 interview.
"We always rethink our decision to [charge for access to reviews], something that's virtually unheard of today, but we've found consumers are willing to pay for good information."
With so much information about its subscribers on file, Angie's List can intermediate between its reviewers and its merchants, for example allowing companies to respond directly to consumers who have posted negative reviews about their experiences.
But its business model and finances have gotten mixed reviews, partly because of the company's high costs to advertise for new paying users. Angie's List increased selling and marketing spending from 63% of revenue in 2009 to 103% in 2011.
But as Angie's List increases its market penetration nationwide, its scale could lead to "substantial profitability," said Anupam K. Palit, an analyst at GreenCrest Capital.
Yelp's free model originated in Silicon Valley's Web 2.0 boom of recent years. Founded in 2004 by former PayPal executive Jeremy Stoppelman, now 34 years old, the San Francisco company fueled its growth by showing up in free Google search results and building a community of contributors with its own social network.
It has also dabbled in products that are trendy among technophiles, such as a smartphone application with virtual reality, a location check-in service, and even deals of the day.
But Yelp's free approach to content has created a problem:
How to ensure its reviews aren't tainted by anonymous posts from business owners, their friends, or enemies. Yelp installed an algorithm to weed out reviews it felt were unreliable, but it said little about how the algorithm worked and it ended up angering some local businesses.
Several filed lawsuits claiming Yelp had attempted to extort ads from them in exchange for allowing better reviews to come through its filter.
Yelp has denied the charges. Last month, a federal judge cleared it of two such suits.
Yelp's challenge remains convincing local businesses with negative views of the site to advertise. In recent years, Yelp has ramped up its ad sales staff. Salespeople account for about half of its more than 900 staff members, up from 250 in 2009.
More broadly, investors must now weigh the climbing valuations of consumer Web companies, particularly those banking on tapping the large but elusive market of local business ads once dominated by the Yellow Pages and local newspapers.
BIA/Kelsey estimates the local ad market will be $149 billion by 2015, with nearly $38 billion coming from digital channels. It's unclear how much of that will go to review sites such as Angie's List and Yelp and how much to other firms such as Groupon that are aggressively selling different ad products to local businesses.
Groupon, which went public earlier this month with a 30% first-day jump, has since given back about a third of its gains.
COMMENTARY: Just reviewed Angie's List website and their How It Works pages explains the ins and outs.
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How To Use Angie's List
Whenever you need a plumber, roofer, dentist, electrician, auto mechanic, physician, dermatologist, landscaper (or anyone from our 500+ categories), search Angie's List online, by phone or via fax.
You'll receive ratings and reviews of local professionals who've done work for other members in your area, plus important details about the type of work they've done, prices, professionalism and timeliness.
Once your choice is made, circle back with Angie's List to share your feedback. Your input on any service or health provider will become part of their rating on Angie's List.
Membership Rules
- Monthly Payment Plan: Become a member for the lowest upfront cost, and even lower monthly payments thereafter. All monthly memberships come with the convenience of automatic renewal, and can be cancelled at any time. There are no refunds. Monthly memberships require a one-time Account Activation Fee when joining. Members are not charged this fee again unless their subscription lapses for over 30 days.
- Annual Payment Plans: Members join at the lowest overall cost and most popular option. Members who choose an annual payment plan receive a significant discount on their subscription. Annual memberships require a one-time Account Activation Fee when joining. Members are not charged this fee again unless their subscription lapses for over 180 days. All annual memberships come with the convenience of automatic renewal, unless otherwise requested. Cancel any time. Best of all, annual memberships are backed by a 110% money-back guarantee, so they're a risk-free way to join.
- Access to the List any time by signing in at angieslist.com.
- Neighborhood Specialists are available via phone six days a week to answer questions and help search the List.
- The Angie's List Magazine, which contains articles, interviews, advice and discounts from top-rated local companies.
- Exclusive Angie's List member discounts from service and health professionals, as well as top online retailers.
- Access to a Complaint Resolution Team, if you ever run into problems with a service company.
Types of Services Rated on Angie's List
You can fine a complete list of services here.
Angie's List Green Company List
On Angie's List search results page, members can sort by the "eco-friendly" column heading so those companies that have registered their green certifications with appear first. There are currently seven designations and a separate icon for each. These certifications are self-reported by each company.
Angie's List S-1 Registration Statement
You can review Angie's List's IPO Registration Statement with the SEC HERE. Here are their financial statements and key metrics:
Key Operating Metrics
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Profit and Loss Statement
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Balance Sheet
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Review Of Angie's List Financials and Key Metrics
Angie Hicks has proven that she can generate substantial revenues, but she has yet to find a way to make a profit. Angie's List has very high membership acquisition costs--$86.00 per member (Q3 2011). Member retention has increased dramatically since 2008 when only 62% renewed. For the nine months ending 9/30/11, 76% of first year members renewed their membership. The average renewal rate for the nine months ennding 9/30/11 was 79%, but this is an improvement over Y/E 12/31/10 when it was 75%.
If I've done the math right, the average revenue per menber is $43.23, but marketing costs per member are $86.00, so it's losing about $43.00 for each new member. Angie's List has to find a way to acquire new members at a lower cost or they will continue to lose money. It's either that, or increase service provider revenues (advertising) which comprise 62% of total revenues for the nine months ending 9/30/11.
Angie's List had 21,927 participating service providers through the end of Q3 2011, and has continued to increase the number of participating service providers, but my sense is that there is still an untapped market of service providers out there.
I like the fact that service providers must be certified either A or B in order to be listed, which is a great thing because it assures that members are able to get accurate reviews of the quality of their work or complaints filed against them. On the other hand, it locks out a lot of service providers. Just how many is not known.
One idea to increase revenues is to use daily deals. If Groupon gets a cut of 50% of their Groupons, from merchants most people don't know much about, Angie's List of certified service providers would give members a very high comfort level, and they might go for the deal. It's worth a try.
The bad news is that Angie's List has incurred operating losses since it started operations. It's accumulated operating deficits now totals $160 million through Q3 2011.
Angie's Membership Pricing
Members pay for their memberships monthly, annually (1 to 4 year membership terms). Membership rates are as follows:
Angie's List (For services or health care)
- Monthly: $3.25
- 1 Year: $29.00 Savings 34%
- 2 Years: $46.00 Savings 45%
- 3 Years: $65.00 Savings 47%
- 4 Years: $80.o0 Savings 50%
Angie's List (Bundle - Includes both services and health care)
- Monthly: $5.20
- 1 Year: $46.40 Savings of 31%
- 2 Years: $73.60 Savings of 43%
- 3 Years: $104.00 Savings of 46%
- 4 Years: $128.o0 Savings of 50%
Still, Angie's List is a hard sell for consumers, because Yelp doesn't charge its members for posting a review. But, I have a feeling that Angie Hicks will figure it out and start to make money to justify its $900 million valuation.
Courtesy of an article dated November 17, 2011 appearing in Bloomberg and an article dated November 17, 2011 appearing in The Wall Street Journal
Angie’s List is a website that aggregates verified consumer reviews of service companies as a way to "capture word-of-mouth wisdom". Angie’s List has about 1.5 million subscribers throughout the United States and Canada who post an average of about 40,000 reviews each month. The concept behind the website is to certify their data collection process by only allowing paid and registered subscribers to access the website, in order to prevent anonymous or biased reviews.
Posted by: Garage Equipment | 12/27/2011 at 10:39 PM