Named after one of its founders, Angie’s List Inc (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 Inc (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 Inc (NASDAQ:ANGI). 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 Inc (NASDAQ:EBAY)’s intent to bring the service to the United States. It seems worth noting in an Angie’s List Inc (NASDAQ:ANGI) investment recommendation that eBay could bring the service to the U.S. and likely eat into Angie’s dominant market share.
In eBay Inc (NASDAQ: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 Inc (NASDAQ:ANGI) beyond belief, as eBay Inc (NASDAQ: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 Inc (NASDAQ:ANGI) is its already strong competition from Yelp Inc (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 Inc (NYSE: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 Inc (NYSE:YELP) members do not have to pay a monthly subscription to get access to the reviews. Yelp Inc (NYSE: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.
