JTMcGee (98.86)

$850 Per Subscriber; Angie's List Earns Pricey Valuation

November 17, 2011 – Comments (1) | RELATED TICKERS: ANGI , P , LNKD

Yesterday I wrote about how LinkedIN and Pandora are overvalued, noting that the low amount of float artificially drives valuations much too high for both firms. The post was titled, "Tech Valuations Will Crumble."

Today, it's all about Angie's List.  The company offers a subscription model whereby users can pay a small monthly fee in order to see reviews of businesses in their local area.  The site is popular as a source of reliable information on local contractors, babysitters--basically any business in which consumers have a vested interest in picking the best possible provider.

The company is unprofitable, as it has been for 16 years, and I remain concerned that it may have already seen the best of its growth story.  The company spends millions of dollars each year on aggressive ad campaigns, most notably on national television.  

I'm very much content with free reviews--online or from friends and family--and would be hardpressed to pay a monthly fee for a service I wouldn't use all that much.  I can't see where members would be willing to pay the company for reviews on a monthly subscription.  I suppose it would be most valuable for consumers who have recently relocated to a new market.  (Interestingly, labor mobilityhas been a hot topic in the media.)

The magic number for Angie's List is $850.  Based on current valuation of the business as a whole, investors are willing to pay $850 per user.  The WSJ reported that subscribers generate average revenues of $6 per month.  Even still, the company lost $27.2 million on annual sales of $59 million in 2010.  

I gave it a red thumb on CAPS for the high per-subscriber valuation.