Making Money with Mavens
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Maybe you're shopping at a store and someone sidles up to you and whispers urgently, "Put that down. You don't want that. Not here. Not at that price. You can get it cheaper at blank store." You look down at the object you were thinking of buying and back up, and now the mysterious person is gone. You have just had a close encounter with that most elusive of creatures, a Maven.
In The Tipping Point by Malcolm Gladwell, he identifies these people as “disseminators of knowledge.” Not gregarious like his "Connectors" nor trying to persuade you like "Salesmen," the Maven is compelled to share data with others for no personal gain. Economists and marketers try to study them in their native habitat, but they are like particles of atoms that change their behavior under observation, a version of the Heisenberg principle.
Gladwell also calls them "price vigilantes," and they are the foci of advertisers and purveyors who would love to exploit them; but mavens prefer the anonymity and freedom of their new arena: the Internet. There are three companies whose entire existences are dependent upon the willingness of mavens to share their knowledge: Trip Advisor (NASDAQ: TRIP), Yelp (NYSE: YELP), and Angie's List (NASDAQ: ANGI). Full disclosure, I am a maven and am compelled to tell you only one of these is making money--it's my mavenly duty.
Monetizing the Mavens
Each of these three companies features crowdsourced reviews by mavens and tries to monetize the free content with ads or by subscription. All three are fairly new publicly traded stocks, with Angie's List's IPO in late 2011, Trip Advisor, spun off by Expedia in December 2011, and Yelp debuting this spring.
Trip Advisor is the most successful of the three, still higher than its IPO price of around $30 but off from its high of $47.19 in July. It's also the only one with a P/E because it's the only one making a profit. Its P/E is 29.40 with a $5.44 billion market cap, a fraction of competitor Priceline's (NASDAQ: PCLN) market cap of $33.07 billion. Priceline's P/E is also lower at 25.07. Trip Advisor aggregates reviews on its travel website, which it boasts as the largest in the world, and then sells ad-space and subscriptions.
Analysts' mean target for Trip Advisor is $38, just pennies below its November close. The last two initiations of coverage in November and October by Stifel Nicolaus and Needham respectively were both buys. The online travel sector has been hot of late with Priceline buying kayak, Trip Advisor's closest competitor, for a 36% premium.
On Nov. 1, the company reported very good Q3 earnings with revenue up 18% year over year at $217 million for the quarter. Profit margin is 24.96% and operating margin is 40.27%. Ad sales, which account for 79% of revenue, both clickbased and display ads, were up as well as subscriptions. However, some drawbacks immediately apparent on the earnings are a decline of free cash flow of 4% year over year and a drop in cash flow from operations. Analysts also expect a 2% annual drop in revenue growth for the next few years.
Margins are pressured by the new expenses Trip Advisor has had to absorb after leaving parent Expedia (The kids never know how good they had it until they move away from the 'rents). Also, like any flegdling out of the nest, the company just had to buy new stuff, like their purchase of website wanderfly.com in Q3. Ah, kids...what are you gonna do?
They have teamed up with Facebook since 2010 and have 34 million unique visitors per month and 57 million unique visitors overall per month. They've also been working hard to monetize mobile. Just clicking on their site on my tablet, a popup appears saying: "Nice iPad. Would you like our free app?" Cute.
The site operates in 30 countries and has a special website in China, daodao.com, which competes with CTrip. Global revenue ex-USA rose from 31% to 36%. What Trip Advisor has over Priceline and Orbitz Worldwide is a full world aggregation of 650,000 hotels, 980,000 restaurants, and 220,000 attractions. Best of all, though, it has a very unique and useful feature for booking flights called seatguru, which can tell you which seats are most comfortable on given airlines, as well as baggage handling fees on each airline, before you click that last buy button.
The Google Goliath and David
Priceline is a big competitor for Trip Advisor but Google (NASDAQ: GOOG) is a competitor, too, with its recent purchase of Zagat -- still not as successful in the travel arena by any means. Google's Zagat really competes the most with Yelp.
Yelp has almost become a verb along the same lines as 'Google' with 82 million unique customers reading and reviewing local businesses. Almost half of that usage is on mobile devices with Apple iOs and Android compatibility, as users 'Yelp' on the fly, but Yelp is one of the two names not making money, with a negative EPS of $0.37. It's also very volatile with insider selling after its Q3 earnings on Nov. 1. Revenue rose 63% year over year, and it reported a better than expected loss of $0.03 EPS, but lowered guidance disappointed.
The problem with Yelp, despite a hard working sales and marketing force, is that even with free content from the selfless mavens who write reviews, margins (profit margin at -18.83%) are being squeezed by acquisitions such as Qype and by the relentless competition from Google and all the other websites available for info on local businesses.
On a positive note, the company was just upgraded by Cantor Fitzgerald last week to 'Buy' with a price target of $24, still down considerably from its 52 week high of $31.96. Short interest is a huge 46.80%, and the company has a 39.61% insider hold, usually a good thing, but in this case they might become understandably antsy to sell out.
Angie is a Fallen Angel
Finally, Angie's List, with a negative EPS of -$1.15, is the worst of these three Internet names. There is just no moat in sight for Angie's List with newspapers like The Washington Post offering similar services for free, as well as an entire web of competition. Its reviews of home contractors, medical professionals, automotive dealers and mechanics are certainly helpful, but it only has 820,000 paid memberships.
Analysts' mean target is $15.00, and the stock is down 18.49% over 52 weeks while the S&P is up 12.66%. The company has debt of $867.31 million to total cash of $65.50 million. The margins are dismal, with a negative 44.65% profit margin and a negative 43.25% operating margin. Fellow Fool Meena Krishnamsetty stated that Angie’s List "is expected to grow earnings annually at 50% over the next five years, assuming competition stays virtually nonexistent."
That's definitely not an assumption I think investors should make.
The Final Takeaway
The only one of the three Internet review sites that's investable is Trip Advisor. As for the others, just imagine someone sidling up to you as you're about to buy Angie's List or Yelp whispering urgently: “Put that down. You don’t want that. Not here. Not at any price.”
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Google, Priceline.com, and TripAdvisor. Motley Fool newsletter services recommend Google, Priceline.com, and 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!