Angie’s List has reached a tentative settlement of a 2012 lawsuit alleging that it automatically renewed membership fees at a higher rate than members were led to believe.
The settlement, which has not yet been submitted to U.S. District Court in Indianapolis, prompted the company to set aside $4 million during the fourth quarter. That sum chopped about 7 cents from earnings that analysts expected to be 12 to 13 cents per share.
Even so, Angie’s List reported a rare profit in the fourth quarter of $2.8 million, or 5 cents a share.
“We’re optimistic we’re going to get this wrapped up,” Angie’s List Chief Financial Officer Thomas Fox told analysts, referring to the lawsuit. It wasn't referred to directly in the conference call, but an Angie's List spokewoman confirmed Wednesday morning that executives were referring to the membership-fee suit.
In late 2012, Philadelphia resident Marie Fritzinger filed a suit seeking class-action status that accused the contractor-reviews company of “systematic and repeated breach” of its membership agreement.
Members provide a credit or debit card that Angie’s List keeps on file to allow for automatic renewal. The suit alleged that Angie's List misrepresented the terms of renewing memberships, and charged more costly rates than members were led to believe.
Fritzinger also alleged that longer-tenured members were hurt by a 2010 change in 30 of the company's most-mature markets. Members would be allowed to select one of three categories to access—auto service providers, home contractors and or health care providers—or purchase a bundled premium membership for all three categories.
She alleged the company renewed more tenured members at the higher rate, without notification.
Richard Shevitz of Cohen & Malad, Fritizinger’s local attorney, confirmed the tentative settlement but told IBJ he couldn’t comment on the specific terms. The lawsuit was filed as a class-action case, which means the terms likely will be publicly disclosed if the court approves the deal.
Meanwhile, Angie’s List faces at least three other lawsuits filed since December that also seek class-action status.
In those cases, members allege Angie’s List executives haven’t been forthcoming about an evolving business model that now relies mostly on advertising revenue from the service providers that its members review, rather than from members' subscriptions.
The suits contend that officers and directors last year provided a rosy picture of the company’s prospects even as they dumped many of their own shares and conducted membership-pricing experiments that suggested the company's growth prospects might be limited.
During the fourth quarter, revenue from memberships rose 29 percent, to $17.7 million. But revenue from service providers rose 57 percent, to $51 million, over the same quarter in 2012.
The firm said that it had nearly 2.5 million paid memberships as of Dec. 31.