Competition Is the Reason to Avoid This Internet Company

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Named after one of its founders, Angie's List (NASDAQ: ANGI  ) is a publicly traded company specializing in helping people. The company, which operates the website of the same name, was founded to help consumers find local contractors and professionals through a series of reviews. With its stock trading at a high valuation and new competition coming, investors should sit this one out.

Competition coming
According to a TechCrunch article, Internet giant eBay (NASDAQ: EBAY  ) is testing a local services marketplace in the United Kingdom. The website features off a service called eBay Hire that offers more service categories than Angie's List. The site offers photographers, antique dealers, and other more specialized contracted service providers.

The launch of the service providers marketplace in the United Kingdom doesn't necessarily signal eBay's intent to bring the service to the United States. It seems worth noting in an Angie's List investment recommendation that eBay could bring the service to the U.S. and likely eat into Angie's dominant market share.

In eBay's second quarter, the internet giant posted a 14% revenue increase to $3.9 billion. Its PayPal revenue grew 20% to $1.6 billion, while Marketplace revenue grew 10% to $2.0 billion. The company added 4.7 million PayPal users and ended the quarter with 132 million total users. Imagine if eBay could bring its local services marketplace to the United States through its huge eBay and PayPal user base. Now imagine that when a service provider is selected from its website, a customer could set up a payment contract with PayPal and have a payment go through once the work is done. I think that this would hurt Angie's List beyond belief, as eBay would offer an additional secure payment service that Angie's List is missing as the middle man.

Existing competition 
The bad news for Angie's List is its already strong competition from Yelp (NYSE: YELP  ) . The online community ended its most recent second quarter with 42.5 million reviews. Yelp had a huge second quarter, with revenue up 69%, reviews up 41% and monthly visitors up 38%. The company, through its website and mobile applications, saw 108 million unique visitors in the second quarter.

Yelp is also beefing up its customer offerings with new platforms. The company spent $12.7 million to acquire Seat Me, a service that directly connects customers to online restaurant reservations. Yelp also launched a platform to help restaurants take orders and process transactions that could distance the company's market-leading position away from sites like Angie's List, which only offers reviews. 

Unlike Angie's List, Yelp members do not have to pay a monthly subscription to get access to the reviews. Yelp will continue to see strong numbers as its data is free and readily available. Angie's List will continue to have to convince people that its data is worth a monthly subscription fee. 

Expansion worries
Angie's List has seen its sales and membership numbers grow through a well-thought-out expansion plan. The company has targeted the largest population centers in the United States and seen a huge boost in every area it enters. As the company expands and reaches a large scale, however, its growth begins to slow.

Average revenue per user is much smaller in the small markets Angie's List has recently entered. The good news is that the company's acquisition cost of $80 per user declined 12% in the second quarter. This remains too high for a company that generates its revenue from monthly subscriptions, however.

In the recent second quarter, Angie's List posted a loss of $0.25 per share. This met analysts' targets, but the company did fall short of revenue estimates. Total revenue in the quarter grew 62% to $59.2 million, but missed estimates by $0.3 million. 

The highlight of the earnings report was a new record number of members. Total paid members rose 51% to 2.16 million. The number of service providers listed on the site grew 42% to 42,452. These numbers are a little misleading, however, as they relate to Angie's List expansion into new markets.

EBay has been a huge Internet company since its early auction days. The company now dominates the online auction and online payment businesses in the United States. A site dedicated to connecting professionals with customers could help eBay expand its localized presence and could also boost shares of stock. Even though it isn't a big growth driver, eBay shares should be bought on any weakness.

Shares of Angie's List trade close to $25 at the time of writing. In the past fifty-two weeks, shares have gone as high as $28.32. Analysts expect the company to post double-digit sales growth in the 2013 and 2014 fiscal years. The company is expected to post a net loss in fiscal 2013 and a small profit of $0.32 per share in fiscal 2014. With competition coming and high costs associated with entering new markets, I think that the company's shares are overvalued at this time and recommend selling or staying away from Angie's List. 

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Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On September 04, 2013, at 10:05 PM, prginww wrote:

    I don't know how Analyst put a buy rating on Angie's List when they spend $80.00 per customer on advertising and get about $25.00 per membership. Angie's List will never make money at this rate because they couldn't keep the customer long term, why would a customer keep on renewing the service when, they already found what they were looking for. There is only one reason why ANGI is still alive. That is due to the boom in Housing Recovery once that start to slow down this stock is doom. Also angi member are finding out that there service an't better than the Free search they can get from Yelp or Home Advisor. I bet most of them Feel Stupid to pay in the first place. Just look at the Review on Google what member are talking about Angie's List.

  • Report this Comment On September 04, 2013, at 10:18 PM, prginww wrote:

    ANGI seems to be a universally despised stock by retail investors (myself included). I'm honestly puzzled why mutual funds own it in size and think it's worth over $20 a share.

  • Report this Comment On September 04, 2013, at 10:23 PM, prginww wrote:

    It reminds me of ZNGA shortly after they went public. It didn't necessarily collapse because the valuation was high - more because people realized, "Wait a second, this business plan is stupid."

    I think ANGI is the same, only more so.

  • Report this Comment On September 04, 2013, at 11:14 PM, prginww wrote:

    Wait before you invest in ANGI, "Check with Angie's List" they have the answer to everything for a small fee of $25.00. LOL

  • Report this Comment On September 17, 2013, at 8:05 AM, prginww wrote:

    Actually, Angie's List makes a killing off the contractors on the list. The companies that are in the top positions pay a pretty decent price to be at the top. It is based on how many members they are reaching. The only "honest" thing is those companies have to have at least 2 A or B reports per category to advertise.

    Then Angie's list calls that contractor and pushes them to advertise. Ever year, if membership goes up, the fees for the contractor go up. If the contractor stops advertising, then his listing, in most cases drops off the search. It might be on page 2, 3 etc. But whoever looks at anything but page one on any search.

    I'm a marketing consultant and know all about their game. Good news is that is does help some contractors get a lot of business. The bad news, it doesn't work for contractors paying high adverising rates if they don't have enough reviews as others higher on the list. So the system is setup to fail. Most of the top rated companies are non professional, mom and pop contractors trying to survive.

  • Report this Comment On October 24, 2013, at 10:03 PM, prginww wrote:

    thanks angie,

    I used to spend thousands per month to promote my business via yellow pages internet etc… now I just create an email for free using Gmail, yahoo or a host of hundreds more pay 30 bucks a month to angies list, write great reviews about my company bragging how awesome we are. You know very professional, great job, cleaned up after the job was complete, pet the dog, played ball with the kids, oh and fixed the misses. Then I exit and create another, oh wait before I exit I trash a few of my competitors, you know nothing to bad that they can defend themselves against like providing real work, no I go for things like sales guy looked real unprofessional, they were late, or never showed up at all for the estimate at all. Of coarse they never showed up we never called them! HAHAHAHAHAHA!!!! My company now shines like a diamond and my competitors look like dodo thanks Angie I don’t know what I’d do without you, oh sorry hun. Just remember not to do to many per month like 1 to 4 max don’t want to look suspicious. Even the dumbest American might catch on, these sheep love this crap they feel so informed and smart, you know got to be a good Steward with the money. Wake up fools!!! A house divided can not stand! I know 1st hand of a few businesses that do this: search Redman Fence every review sounds like a broken record. “Terry and the crew did an amazing job…vomit….vomit…they smiled were professional and were just awesome, really? last time I checked people barley paid to review a company to complain and get some type of relief, two page dissertations on how great the company is and pay for it???? more vomit. Angies list is a company built on lies and deception they will not last long term. One last note, Angie tells it’s members that contractors can not pay to be on angies list. Did you know that after your company receives a few great reviews (you know the one you write, wink wink) Angie will be in contact with your company inviting you to pay 500.00 per month to be placed at the top of the list? No conflict here, after all your the best! you said so! time and time again! hahahaha thanks Angie your the best!

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