Three Risky Review Site Investments
Dan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Yelp (NYSE: YELP) continues to expand its domestic and international geographic reach. Those expansions come with costs, however, including lower margins. The game plan is for the costs to pay off in the future, of course, but how risky would it be for you to make that bet? Are there review sites that offer better investment opportunities, such as TripAdvisor (NASDAQ: TRIP) or Angie’s List (NASDAQ: ANGI)?
We’ll look at all three businesses and how they operate in the simplest terms possible. Then we’ll cover their fundamentals and potential prior to forming an opinion on which company offers the best investment.
What is Yelp?
If you’re planning on dining at a new restaurant, downing a few beers at a nearby bar, shopping at a store, or dancing and mingling at a nightclub, then you might want to check Yelp.com first. It’s a short time investment and it could save you a lot of time and money. You would also be following a popular trend.
According to Alexa.com, Yelp.com currently ranks no. 186 in the world and no. 45 in the United States for Internet traffic. Those are significant numbers, and the global rank improved nine spots over the past three months, but this doesn’t necessarily indicate financial success. Yelp’s revenue has consistently increased on an annual basis, but it has been in the red for four consecutive years.
As Yelp continues its domestic and global expansion, expenses increase. Fortunately, Yelp has nearly $100 million in cash and no debt. As long as Yelp doesn't eventually end up in highly-leveraged territory, this expansion looks to be a wise choice. On the other hand, with a low barrier to entry for review sites, a new competitor could set up shop and steal market share with ease. Yelp is a well-known name, but it's still not a household name. Perhaps the company's expansion efforts will help in this regard, but it might also need to offer a unique feature that establishes the brand more and keeps potential rivals at bay.
What is TripAdvisor?
If you’re planning a vacation and you would like to research traveler reviews for hotels, vacation rentals, restaurants, and attractions, then you should consider using TripAdvisor.com. The Alexa ranking for TripAdvisor isn’t as high as Yelp’s, coming in with a global rank of no. 237 and a domestic rank of no. 89, but that doesn’t mean that the company's financial results are weaker.
TripAdvisor’s revenue and earnings growth have been slow over the years, but they have also been consistent. Savvy investors like when a company doesn't grow too fast. TripAdvisor is always profitable, too. Considering the company’s reach, brand strength, and strong fiscal management, it’s also a possible acquisition target at some point down the road.
TripAdvisor-branded websites are offered in 30 different countries, including daodao.com in China, which currently has a global online traffic rank of 8,983. More importantly, daodao.com's rank has moved up an impressive 2,041 spots over the past three months. daodao.com ranks No. 1,174 in China.
TripAdvisor's presence in China is only one example of its broad diversification. In addition to that, as well as 20 other travel media brands, it owns Tingo.com, a site that allows you to automatically receive partial refunds on your credit card if the hotel room you booked sees a rate drop. Tingo.com has a global online traffic rank of 35,805, and that rank has increased 7,371 spots over the past three months. Tingo.com ranks No. 7,175 in the United States.
As you can see, TripAdvisor is no stranger to diversification. As long as the travel industry remains relatively healthy, this will greatly increase the odds of future success.
What is Angie’s List?
If you’re going to hire a plumber, contractor, or doctor, then you might want to check Angieslist.com first. You would be in good company considering 2 million households across the United States use Angie’s List regularly. Not only will you find certified reviews on whomever you might hire, but you will also receive discounts on home projects. Furthermore, Angie’s List offers a Complaint Resolution Team in case any issues arise.
The downside with Angie's List (for consumers, not investors) is that there are membership fees. Members can sign-up for just $4.40 per month, but that would come with a $10 sign-up fee. If members sign-up for one year or more, then the sign-up fee is waived. Members will also pay less if they sign-up for more years. If they sign-up for one year, for instance, then it will cost them $39; if they commit for two years, however, then it will only cost them $70.
All of this might sound great for Angie’s List, but it’s not nearly as popular as Yelp or TripAdvisor. On Alexa.com, it ranks no. 2,392 in the world and no. 539 in the United States. However, it's global rank has increased 308 spots over the past three months.
Revenue has consistently increased on an annual basis, but Angie’s List has delivered two years of losses, and four of the last five quarters have been in the red. Yet another concern is the rising popularity of Thumbtack.com, which is a similar site where only service pros pay fees, not consumers. At Thumbtack.com, you type in what service you want and an email with five quotes is emailed to you. If Thumbtack.com gains traction, then there will be little reason for consumers to use Angie's List.
Yelp has been in the red for years, it is currently trading at 215 times earnings, and its profit margin is -9.03%. These kinds of numbers shouldn't inspire investor confidence. As stated above, aggressive expansion comes with costs.
TripAdvisor has consistently delivered profits, it’s trading at 28 times its earnings, and it sports a profit margin just north of 25%. TripAdvisor also offers broad geographic diversification.
Angie’s List has been stuck in the red, it’s trading at 84 times earnings, and it has a profit margin of -26.79%. A new competitor might also steal significant market share going forward.
All three companies own high short positions simply because review sites aren't where investors will flock to if the economy heads south. These investors known that either consumers will cut down on their purchases or service professionals and advertisers will cut their budgets to save money.
All three investments are high risk, but TripAdvisor is likely to offer the most upside potential.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends TripAdvisor. The Motley Fool owns shares of TripAdvisor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!