Mixed Reviews on Angie's List

Need a plumber? You might go to Angie’s List, the online grader of consumer services, for a highly recommended one in your neighborhood. The site is a clearinghouse for service providers, giving grades of A through F for medical, auto and home-repair services. But does Angie’s stock (symbol ANGI) get high marks? That’s a dicey question.

The company went public last November at $13 per share and closed at $16.26 on its first day of trading. The stock has been on a roller coaster ever since, closing at $14 on May 4.

Part of the reason for the volatility is that Angie is likely to continue losing money at least through 2013. So analysts are making judgments based not on their estimates of future profits, but on the degree to which they believe in Angie’s business model.

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That model involves selling subscriptions to consumers who need reliable referrals to local doctors, mechanics and contractors. The company then encourages those subscribers to contribute reviews of the same vendors based on price, punctuality, professionalism and service. The expectation is that more subscribers will bring more ratings; the more ratings, the more valuable the subscription. Rated companies can’t alter their grades on Angie’s List, but they can advertise to increase their prominence in the rankings.

The catch is that getting people to pay for subscriptions and vetting their reviews is a costly process. In the first quarter, Angie spent $82 on marketing to acquire each new paying member. That dwarfs the annual membership fee, which costs $30 to $50.

The number of members, 1.2 million at last report, is rising rapidly, but so are the site’s overhead costs. Angie lost $13.4 million on $31 million in revenues in the first quarter, compared with a loss of $9.6 million on revenues of $17.6 million in the same quarter a year earlier.

Analyst Shawn Milne, at Janney Capital Markets, thinks Angie’s List has the “secret sauce” to make the business fly and rates the stock a “buy,” with a $19 “fair value.” But Sameet Sinha, an analyst with B. Riley & Co., isn’t convinced. He rates the stock a “sell.” He says the costs of acquiring and retaining subscribers will result in years of red ink.

Kathy Kristof is a contributing editor to Kiplinger’s Personal Finance and author of the book

Follow her on Twitter. Or email her at practicalinvesting@kiplinger.com.

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