Content area
Full Text
Though it hasn't earned an annual profit in its 19 years in business, the treasure of Angie's List has been its reputation as a source of unbiased ratings of service providers, from auto mechanics to urologists.
And talk about a brilliant business model: Angie's doesn't pay to obtain reviews, but has persuaded more than 2 million consumers to pay an annual fee to write reviews for the site and to access them.
But the Indianapolis company's ostensibly consumer-driven business model is taking a beating like a low-rated plumber. Angie's List is the target of at least two investor lawsuits that note the company now generates the vast majority of its revenue from the service providers its paying members to review.
Shareholders point to an experiment last fall to slash membership fees in several key markets, suggesting its member paid model might be on the ropes. That sent Angie's shares tumbling almost 20 percent.
Angie's List also has been called out in Consumer Reports and other publications for allowing service providers to essentially buy their way to the top of the ratings page.
Ultimately, these developments raise questions whether Angie's has so altered its business model to devalue its unbiased reputation and prospects for future profitability. If that is so, how is it any better than competitors' reviews sites, such as Yelp, Porch.com and Google Local - which don't require consumers to pay and are growing at a faster clip?
A lawsuit brought on behalf of Colorado shareholder Paul Korda says Angie's executives, despite touting quarterly increases in revenue and other metrics, are "concealing the fundamental structural problems that have prevented it from achieving profitability and that, barring a miracle, will prevent it from reaching profitability in the future."
Angie's List spokesman Cheryl Reed broadly denied the allegations and said the company would vigorously defend against them. Angie's List points out that its revenue sources are no mystery. The company's 2011 IPO filings included revenue breakdowns going back five years, and since its public debut it has revealed that information every quarter.
Angie's List officials declined to comment further, citing a quiet period ahead of quarterly earnings set for release Feb. 12.
Confluence of Issues
While Angie's List has long been a favorite of short-sellers who...