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Has Angie’s List Inc (ANGI) Finally Turned the Corner?

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After a rocky start as a public company, has Angie’s List Inc (NASDAQ:ANGI)  finally turned the corner? The company that regularly spends a major portion of revenues on sales and marketing was able to generate strong membership growth by only increasing marketing spend by 10% in Q4. Will the company be able to continue the trend in 2013?

The company helps consumers find local service professionals in more than 550 categories of service, ranging from home improvement to health care. It has more than 1.7M subscribers across the United States that share their consumer experiences and use Angie’s List to gain unlimited access to local ratings and exclusive discounts.

It competes with free review site Yelp Inc (NYSE:YELP) and is a comparative service to Tripadvisor Inc (NASDAQ:TRIP) that provides user submitted reviews for the travel industry. The major difference is that Angie’s List requires membership fees for access to the user reviews, therefore limiting the user base and increasing the quality. The limited user base effectively reduces the potential service provider advertising revenue.

Q4 2012 Highlights

The company reported a surprising profit that easily surpassed the analyst estimates for a 2-cent loss. Revenue of $46M slightly beat forecasts, but the real key to beating estimates was the ability to grow revenue at a substantially higher rate than Marketing.

Below are the highlights for Q4:

  • Fourth quarter revenues increased to $46.2 million, up 68% over the prior year quarter
  • Fourth quarter service provider revenue increased to $32.5 million, up 83% over the prior year quarter
  • Cost per acquisition (“CPA”) in the fourth quarter was $39, a decrease of 24% over the prior year period
  • Fiscal year 2012 revenues increased to $155.8 million, up 73% compared to fiscal year 2011
  • Total paid memberships of 1,787,394 at December 31, 2012, up 66% year-over-year

Q1 2013 Guidance

As important as the strong beat in Q4 is the ability to continue keeping Marketing expense growth down. The company provided the following guidance for Q1:

  • Total revenue in the range of $51.0 million to $52.0 million.
  • Marketing expense in the range of $19.0 million to $20.0 million.
  • Sales expense in the range of $20.0 million to $22.0 million.

While marketing expense will have limited growth over the first quarter of last year, the company still plans to spend at least 75% of revenue on marketing and sales. When including operations, technology, and general administration expenses of nearly $19M if using the Q4 levels, the company has an expense level of roughly $58 to $60M.

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