1. Angie’s List pitches itself as a website where you can see reviews of local businesses if you subscribe to their service. They implicitly try to differentiate themselves from other review services such as Yelp by certifying reviews to ensure accuracy and not allowing the reviewer anonymity. There’s an old adage that word-of-mouth referrals are the most effective form of advertising. The concept behind Angie’s List seems to involve using the subscription model and the known identity of all reviewers to replicate word-of-mouth advertising. At first glance, it would appear that ANGI’s revenue comes from subscriptions, either to the full bundle, to a home improvement-specific list, or to a medical services-specific list. However, after reading the investor’s relations section it appears that the majority of revenue is actually from service providers not from subscribing members.
2. In the 10-K Overview, they mention that highly rated firms are allowed to advertise discounts to their members, seemingly in the form of a Groupon-like promotional system. They also mention the potential revenue from service providers by having access to a specific, targeted market segment. The general tone of the 10-K initially reads more like a sales pitch for a business plan given to potential investors than the more typical legal / accounting-oriented tone often used in 10-Ks. Revenue is based on assumptions about how much a paid membership is likely to generate over its lifetime, given historical run rates in markets where long-term trends are available. It is recognized ratably over the course of the membership, and acquisition costs are capitalized accordingly. There appear to be significant risk factors with regard to future growth, both because of the subscription-based nature of revenue and of the risk that future growth in subscriptions or renewals might not mimic the past experience. Furthermore, the level of member engagement and usage of the product might negatively impact the premiums ANGI is able to charge its service providers. ANGI essentially makes money by attracting a targeted audience as members and then selling the information about these members as sales leads to potential service providers.
There is a very significant difference between the website and the 10-K. The website is designed to give a consumer-oriented feel, where one would guess that ANGI only makes money from membership fees. However, reading the 10-K it is quite evident that the consumer is actually the product as much as they are receiving access to a list of high quality service providers. I would expect that paying for a service would limit the amount of advertising I would see, when in fact this seems to be exactly ANGI’s strategy. The risk is that members will have a negative experience, reducing renewal rates and hurting the brand’s perception. Furthermore, the automatic renewal feature will only last so long if members are being auto-renewed but don’t use the service regularly. If revenue is being calculated based on unsustainable renewal rates, it might need to be restated when these assumptions are not realized.
3. Based on the 2012 10-K, the main accounts on the income statement are the service revenue as compared to the membership revenue. The percentage of total revenue coming from services is growing much greater than that of membership fees. Likewise, marketing expenses are a very significant portion of overall expenses. On the balance sheet, prepaid expenses and cash are the main assets while deferred revenue from both membership and advertising sales represent significant liabilities.
Looking at the same size statements, the accrued liabilities and deferred revenues really fluctuate from year to year on a common-sized basis. Prepaid expenses and short term investments are also quite variable, although no three-year trend is initially evident. A likely explanation for the changes is the expansion into more geographic areas as well as the
