Why Angie's List Is Poised to Pull Back

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, local services review site Angie's List (NASDAQ: ANGI  ) has received an alarming one-star ranking.

With that in mind, let's take a closer look at Angie's List, and see what CAPS investors are saying about the stock right now.

Angie's List facts

 

 

Headquarters (founded)

Indianapolis (1995)

Market Cap

$1.5 billion

Industry

Internet software and services

Trailing-12-Month Revenue

$176.9 million

Management

Co-Founder/CEO William Oesterle

Co-Founder/Chief Marketing Officer Angela Bowman

Trailing-12-Month Return on Capital

(89.3%)

Cash/Debt

$62.9 million / $14.9 million

Competitors

Google

Yahoo!

Yelp

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 93% of the 373 members who have rated Angie's List believe the stock will underperform the S&P 500 going forward.

Just last week, one of those Fools, All-Star zzlangerhans, succinctly summed up the bear case for our ommunity:

[Angie's List] was a great idea initially, to charge consumers reviews of local contractors and such. But lately, as competitors have started to pop up, it has become somewhat of an extortion scheme of the unsuspecting. Expect this company to continue underperforming.

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Read/Post Comments (3) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 18, 2013, at 7:05 AM, tjsimone wrote:

    Brian, no credability when you use the same all star, zzlangernas, in everyone of your articles. Do you pay him for all he quotes you use? Very biased if you ask me...

  • Report this Comment On July 25, 2013, at 10:39 AM, PianoguyScott wrote:

    A couple of comments...

    First of all, although I do not own ANGI (yet, maybe...) I have been a customer for 6 or 7 years not in one, but two separate cities simultaneously. (You pay for access to the review dbase based on which city you want.)This has given me a unique insight into the cos. challenge to grow into a mature, national business.

    In Indy, they have been here for years and the data is so deep and broad and high quality that I would pay double what they charge. For anyone with a home, once you experience it it's like crack and you never want to give it up. Once contractors know you are an Angie's List subscriber they absolutely bend over backward to give you good service in the hopes of getting a good review (and the fear of getting a bad one) because their Angie's List rank can make or break their entire business. I've confirmed this with multiple contractors who have told me that upwards of 80% of their business comes from their good reviews on Angie's List.

    It's the classic "network effect" (which I LOVE for stock picking moat reasons) whereby more subscribers makes the service more valuable, which causes more subscribers, etc.. It's a sweet business model to keep collecting those recurring annual fees for basically running a big database ONCE that network effect kicks in.

    I also subscribe in Fort Myers, FL (I own a property there) where they are much newer and still developing that market. The service is helpful, but frankly, due to the very small number of reviews I would very seriously consider whether or not to re-up had I not experienced how fantastic it is in a mature market like Indy.

    Aye, there's the rub...

    In Fort Myers the self-fueling engine is still sputtering until it reaches some critical mass that lets the network effect take over.

    So my hesitancy to dive into ANGI yet revolves around trying to get some confirmation of whether or not all of the new markets they are entering nationwide are starting to achieve that network effect, or whether new subscribers in those newer cities try it once, but then don't re-up the next year.

    If those engines start purring in all the new markets and the network effect takes hold, I think ANGI could be a VERY successful investment. If what happened in Indy (and a few other early cities they entered - Columbus, OH maybe?) was just an anomaly, they will be in trouble.

  • Report this Comment On July 25, 2013, at 10:44 AM, PianoguyScott wrote:

    and BTW - Google Yahoo and Yelp are NOT competitors...

    Even if they have review pieces to their businesses, they do not compete with Angie's List. It's like comparing a pea shooter to a howitzer. Not that they couldn't compete in the future - but the whole depth of the Angie's List system, with the fact checking, the consumer complaint resolution service, and on and on.

    It's a really different animal than just a review site like Yelp once you've experienced it...

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