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Angie's List, Inc. Message Board

  • facttrader7 facttrader7 Oct 2, 2013 7:20 PM Flag

    Angie's List: Only $322 Million In Member Lifetime Value, Yet Valued At $1.2 Billion

    Angie's List: Only $322 Million In Member Lifetime Value, Yet Valued At $1.2 Billion
    Oct 2 2013, 16:37

    Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in ANGI over the next 72 hours. (More...)

    Angie's List (ANGI) has had a strong year despite recent sell-offs. Although shares are down 26% from the all-time high, the stock is still up over 100% from last November. Even with the recent decline though, Angie's List remains extremely overvalued due to several factors:

    The net lifetime value of its current member base is only $322 million. Even if Angie's List can increase its paid membership base by one million per year, it will take until 2017 until it has enough members to justify a $1.2 billion valuation.
    To get to the 6+ million paid members required to justify a $1.2 billion valuation would require Angie's List to achieve at least 19% national penetration in its target demographic of homeowners aged 35 to 64 with an annual household income of at least $75,000. Currently Angie's List has only 10% penetration in its most mature markets (those where it has been operating in since before 2003).
    Competitors such as HomeAdvisor and Yelp are able to apply competitive pressure via free or low priced offerings that will bring the company's margins down and lower the lifetime value per member. A scenario where Angie's List needs to cut membership fees to an average of $20 per year (from a current level of $30), brings the lifetime value of its current member base down 29% to $230 million even if service provider revenues are maintained. That scenario would also require Angie's List to achieve over 25% national penetration to justify current values.
    A large part of the argument in favor the company's current valuation is that its continued losses are due to heavy investment in acquiring new members and advertisers, and that this investment will eventually pay off in substantial profits. We do agree that Angie's List will turn profitable in the future, but we will also show that the expected lifetime value from all its current members is less than 30% of its current valuation. Even if we base the Angie's List valuation on its projected membership base at the end of 2015, its valuation is only $719 million. Two years is an eternity for an Internet company, and with very strong competitive threats from companies like Yelp and HomeAdvisor, there is no guarantee that Angie's List will be able to maintain its growth in a cost-effective manner for that long. We are conservatively putting a $12.35 price target on the stock, which represents a 41% downside to current prices. This is based on Angie's List reaching a paid membership base of 4.4 million at the end of 2015, an increase of 103% over current levels.

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