Angie’s List Stock Improves, But …

Things seem to be turning around for local business reviews site, Angie’s List (Nasdaq:ANGI). Recently, the company released their quarterly financials which managed to surpass market expectations. They attribute the success to an improving consumer economy. According to the U.S. Bureau of Economic Analysis, in April of this year, disposable income in the country fell 0.1%, but when adjusted for inflation the metric showed an improvement of 0.1% over the year. Similarly, during April, consumer spending fell -0.2%, but when adjusted for inflation grew 0.1%.

Angie’s List’s Financials
Angie’s List’s Q1 revenues grew 68% over the year to $52.2 million. They are still suffering losses and ended the quarter with a loss of $0.14 per share compared with a loss of $0.24 per share reported a year ago. The market was expecting a loss of $0.17 per share for the quarter on revenues of $51.54 million.

By segment, revenues from service providers grew 78% over the year to $37.5 million. Advertising revenues of $32.9 million were 89% higher than the previous year’s. E-commerce revenues grew 24% to $4.7 million.

Among other operating metrics, during the quarter, they reported an increase of 60% in the number of total memberships. They ended the quarter with more than 1.95 million paid subscribers compared with 1.22 million a year ago. Gross paid memberships added during the period increased 28% to nearly 275,000, and customer renewal rates were at 75%. Cost per acquisition for their customers reported a big decline, 12%, to $72 attributed to the increasing importance of word-of-mouth publicity.

For the current quarter, Angie’s projected revenue of $58.5 million-$59.5 million, ahead of the Street’s target of $57.2 million.

Angie’s List’s Social Media Expansion
Angie’s List is looking to expand the social feature for their consumers. Earlier this year, they piloted a hyper-local forum in select markets across the country. The pilot is known as the Band of Neighbors and is a private forum where neighbors of a community can share advice about local resources, and ensure safety of their community by alerting each other to crime and safety issues. The topic covered include local business recommendations, general neighborhood responsibilities, announcements and community action calls and travel warnings.

Given that their site is already the preferred place for local recommendations, adding other information that is relevant to a neighborhood will be a complementary feature. Through the addition of the service, not only will the community become more aware of things happening around them, but its members also be able to connect with more of their neighbors. To ensure secured access, the portal is accessible only to neighbors with proof of residence. For now, the service is being piloted in Indianapolis, Columbus, San Francisco, and Washington, D.C. and will extend to other markets based on the results of the study. The key competitor in this category is Nextdoor, a venture-funded startup that has raised more than $40 million in funding. Whether that company can be successful remains to be seen, although for Angie’s List to experiment with the category makes perfect sense.

Angie’s List stock is trading at $23.26 with a market capitalization of $1.35 billion. The stock touched a 52-week high of $26.72 in April of this year, soon after their results announcement. The stock may have a rebound, but like some analysts, I remain skeptical. It is not just the absence of a robust financial model, but as Citron Research  pointed out their “model was flawed because a requirement for reviewers to use real names discouraged negative reviews and could lead to harassment to those who post negative feedback.”