Angie’s List (ANGI) Is Getting Negative Reviews

Price cuts, business model change have bears licking their lips

   

Wall Street is doing a number on Angie’s List (ANGI) today, giving it a one-star review in the form of a 15% knock to Angie’s List stock.

The main driver of today’s ANGI bearishness is a downright troubling article from the Wall Street Journal that lays out how the company’s business model has been changing — including huge cutbacks on pricing.

Angie’s List has two main revenue streams: service providers — which includes ad revenues and fees from e-commerce transactions, and drives about 73% of revenues — and paid memberships from consumers, which fills out the rest. Growth has not been much of an issue, either — in the latest quarter, for instance, revenues shot up by 62% to $59.2 million.

But there has always been a nagging issue: Why would consumers continue to pay membership fees when they can essentially get the same service for free from rivals like Yelp (YELP)?

Yes, Angie’s List spends aggressive amounts of television advertising (and I personally have yet to see a commercial from Yelp), which helps with recognition — but once a customer is made aware of both, Yelp holds a considerable advantage over ANGI.

According to the Wall Street Journal, Angie’s List has recently slashed the membership fees by about 75% (from $40 to $10) in cities including New York, Washington, Chicago, San Francisco and Indianapolis — a move ANGI chief William Oesterle said was an experiment to get more users.

Oesterle also mentioned that the company has a new platform that processes the transactions from service providers, which allows for a nice cut from revenues. This is a much different approach than Angie’s previous business of merely charging listing fees to service providers, which gives them priority in search results.

No doubt, the paid membership model is certainly powerful. Just look at companies like Salesforce.com (CRM), ServiceNow (NOW) and Workday (WDAY). But of course, these are all focused on business customers.

However, when it comes to consumers, they almost always expect to get something for free when it comes to the web.

Angie’s List is caught in the middle, and while these efforts might help the cause, the risk is that consumer volume doesn’t pick up the pace, which would put pressure on balance sheet.

For now, expect some rocky waters for ANGI during the transition.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


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