Does Angie's List Inc. Offer Any Value?

With Amazon.com (NASDAQ: AMZN  ) expected to enter the local services space this year, it suggests taking the time to recheck the prospects of Angie's List (NASDAQ: ANGI  ) if Amazon.com sees the space as valuable. Angie's List went public back around the same time as Yelp (NYSE: YELP  ) , but the results have been dramatically different for the related local service stocks.

From the beginning, the free-to-join platform of Yelp scaled quicker and attracted more users, but in the end, Angie's List had the higher-quality paid and verified members. In that way, it's the ultimate tortoise versus the hare scenario. Yelp has quickly amassed 132 million monthly users, and Angie's List is stuck with only 2.6 million paid members. Will the paid members eventually have more value?

Still plugging away
While Angie's List stock has mostly disappointed since going public, the company continues to plug away, with revenues and paid memberships growing at 35% year-over-year or more during the first quarter of 2014. With more local markets maturing, the company was able to reduce the EBITDA loss to $0.6 million based on only increasing marketing expenses by 19% over the prior year.

The good news is that the company continues to shift revenue toward service providers by lowering some of the membership fees. It is clear that the lifetime value of a user and the service is greatly increased by the number of users in each market.

For the quarter, Angie's List saw service provider contract values surge 41%, but the amount of participating service providers only hit 26%. It appears the company is struggling to add new service providers, though the existing ones are spending more . More importantly, service provider revenue grew an impressive 45% over the prior year period.

However, those numbers can't match the nearly 66% growth in revenue generated by Yelp. The local review service only saw monthly users grow 30% for the month, but the active local business accounts grew by 65% over the prior year. With a larger user base, Yelp is growing business accounts quicker than Angie's List.

Amazon.com wants a piece of that action with plans to roll out a local marketplace that aims to connect buyers of products from the website directly with verified installers in the area. Once users start reviewing these services one might envision an expansion of the network to target other home improvement related projects that would quickly encroach on the marketplace of Angie's List.

Scale matters
Angie's List recently released hitting a fourth market with 100,000 paid households. The company now has major scale in Los Angeles, Washington DC, New York City, and Chicago. This level of subscribers in certain metro areas suggests that scale matters in this business. The review of the cohorts showcases a situation where the largest and oldest markets are performing strongly, but the recent markets have a questionable ability to reach scale.

Another interesting dynamic is that Yelp only recently entered market number 27, while Angie's List actively lists 253 markets. The last 105 markets entered after 2010 cost Angie's List a significant amount of money. Users doubled nearly 100%, yet the average market has less than 1,000 members. The company now spends nearly double on marketing as it gets from revenue in those last 105 markets.

Bottom line
Trading at only slightly above 2 times forecasted revenues for 2014 and growing revenues at 39% in the first quarter, Angie's List is a stock worth watching. This valuation compares favorably to Yelp trading at 16 times expected revenues for this year.  The company continues to have issues with whether it can scale enough in the smaller markets, but the signs that Amazon.com wants into the business is a good example that the market has long-term value . 

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