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UPDATE: Angie's suitors could include Amazon, Yelp, IAC

October 1, 2014

If Angie’s List is putting the "for sale" sign up, industry observers said it may pique the interest of companies like Amazon.com, Yelp and the website holding company IAC.

On Tuesday, the Financial Times reported that the Indianapolis-based consumer services review website hired investment bankers to explore strategic options, including a sale. The company’s stock price was up as much as 20 percent Wednesday morning on the report. The company declined to comment, saying it doesn’t discuss rumors.

Jeb Banner, an Angie’s subscriber who previously ran an Indianapolis-based Internet auction business, said Seattle-based Amazon might be interested in Angie’s position as a consumer-services middleman, a space Amazon has attempted to enter recently.

“For Amazon, as they look to become the everything store, services is a piece that they don’t currently have, at least not in any density," he said. "They’re focused mostly on products.”

Reuters reported this summer that Amazon was planning to launch a local services marketplace.

Ken Skarbeck, CEO of Indianapolis based investment firm Aldebaran Capital, said Amazon could be a suitor but might prefer to build its own platform.

“If [Amazon] felt Angie’s platform gave them an entry into some businesses they wanted to pursue, that would make sense," Skarbeck said.

Skarbeck and others also mentioned San Francisco-based Yelp, another consumer-review hub, which focuses on restaurants and retail establishments. He said Angie’s List might be attractive if Yelp wanted to expand into home repair and health care, two big fields for the Indianapolis company.

Angie’s list went public in 2011 and  has only been able to post two profitable quarters. Its stock peaked around $28 a share last year and, before Tuesday’s news, reached a fresh 52-week low around $6.37 a share. Its stock was trading at $7.63 late Wednesday afternoon.

Ken Copley, an analyst at Iowa-based Capital Executive LLC, prefers Yelp's business model, which opens up reviews to anyone. He thinks Angie's List's membership-fee approach is fundamentally flawed and that the company should become free.

“It’s simple economics: Anytime you try to charge something, you’re going to create an impediment to consumption,” Copley said. “The value lies in the membership, not the membership fee.”

Copley said that as one of the first players in the consumer-service marketplace space, Angie’s List still has the cache. But it’s slipping, he said, because the millions of dollars the company is spending every quarter to attract new paid members has not produced a high return on investment. The company has a 9-percent penetration rate for its target consumer pool of about 31 million people, he said.

“I’m fairly confident that if a private equity firm or another company buys it,” Copley said, “I’d be shocked if they don’t do some of the things I’ve talked about for the last six months.”

Kris Beible of San Diego-based Software Equity Group, an investment banking and advisory firm, said Yelp might not be interested in buying Angie's List because it's thriving on its own. Yelp shares have more than quadrupled since the company's 2012 initial public offering.

“Obviously they’re in the local review space,” Beible said, “but they’re doing so well on their own as a business that it could potentially significantly dilute their stock price and performance in the public markets.”

Beible also doubts private equity firms would be interested because of Angie's lackluster financial performance.

He put New York-based IAC at the top of his list of potential buyers, given the consumer search brands the holding company possesses and its cash on hand. IAC owns Match,com, Ask.com and HomeAdvisor.com, an Angie’s List competitor.

The firm has about $1 billion on its balance sheet. Angie’s List had a market capitalization around $355 million Wednesday afternoon.

“It could be an opportunity for them to strengthen their offerings within the local marketing and local review space,” Beible said.

Beible said Groupon and Yahoo! also might be interested in buying Angie's List as a way to expand their local offerings.

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