3 Relatively Recent Internet IPO Stocks Not Named Facebook

By Michael Carter - September 5, 2012 | Tickers: ACOM, ANGI, GRPN | 0 Comments

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The following three stocks have a business model revolved around profiting from the internet in some way.  All three companies have issued their initial public offerings (IPOs) relatively recently and none of them are named Facebook. 

Angie’s List

It is hard to believe that Angie’s List (NASDAQ: ANGI) has been public less than a year with its IPO on November 17, 2011 based on the ongoing repetitive commercials you may have seen on TV.  The business model revolves around generating revenue in two ways.  First is from paying members (the consumers) who research, hire, rate, and review local professionals for critical needs, such as home, health care, and automotive services.  Membership subscriptions are sold on a monthly, annual, and multi-year basis.  Second is from selling advertising in its monthly publication, on its website, and through its call center to service providers that meet certain rating criteria.  Basically the only ones that can advertise are those with decent ratings from its paying members.

I actually joined Angie’s List in order to find health care professionals locally reviewed to the new city I was moving to.  With my first-hand knowledge, I can give you the pros and cons of everything right and wrong with Angie’s List and why they have yet produce a positive earnings-per-share (EPS) quarter since the IPO.  Their EPS by quarter since the IPO so far have been: -$0.30 (December 2011), -$0.24 (March 2012), and -$0.41 (June 2012).

Some of the pros include the low price point for what it is you want to research on.  I was able to get 1-year membership for the category ‘Health’ for under $10 with coupons and discounts that aren’t hard to find.  I was also able to find the local doctors and found that the top ones I saw that had decent websites I had reviewed before I joined Angie’s List also had good reviews.  Unfortunately, the cons far outweigh the pros.  First, if I’m paying less than $10 for an entire year, how does that translate to real revenues for the company overall?  Angie’s List says they have more than 1.4 million paid memberships as of June 30, 2012.  I understand I am not the average subscriber and the average person might pay twice what I pay or a little more given that there are multiple categories to choose from to add to the overall bill.  But if you consider the prices many people pay monthly for magazines, subscriptions, dating sites, or anything else, these subscription fees for Angie’s List, while conveniently cheap for consumers, is also inconvenient for Angie’s List bottom line.  There is a strong possibility they know they are competing against free review websites and they have no choice but to offer these cheap prices.  The business model is also not so friendly to the customer that wants to look outside their city.  Instead of being able to switch zip codes, the customer needs to purchase another account for that other city. 

Overall, I don’t see Angie’s List getting better anytime soon as an investment.  They advertise that their typical member is between 35 and 64, married, owns a home, is college educated, and has an annual household income of at least $100,000 – there goes any chance for reaching the wider market.  Angie’s List probably made sense as a business model over a decade ago.  It was founded in 1996 after all.  However, today’s internet is changing so rapidly and people can easily find information about a company or service for free with a lot more reviews across many sites.  Angie’s List may have “reviews that you can trust” but I say it also has a business model going bust.

ANGI Total Return Price data by YCharts

Ancestry.com

Going opposite way compared to Angie’s List is Ancestry.com (NASDAQ: ACOM) whose commercials are just as around the clock on TV.  Ancestry.com is an online family history resource that derives revenues primarily from providing online access to digitized historical records on a subscription basis and their IPO was a few years ago on November 13, 2009. 

Ancestry.com and Angie’s List both offer information through an online portal on a subscription basis.  While Angie’s List offers reviews of services, Ancestry.com offers information about family history.  This is about the only thing they have in common, however.  Ancestry.com is the world’s largest online family history resource and therefore it is the market leader in its business category.  There are hundreds of review sites that offer their information for free.  Where Angie’s List fails, Ancestry.com succeeds.  Ancestry.com has 2.0 million paying subscribers around the world accessing billions of historical records like pictures and documents as of June 30, 2012.

Ancestry.com has a much higher subscription cost with monthly memberships starting at $22.95/month for U.S. records and $34.95/month for unlimited world access.  This translates to a much higher revenues for the company and this makes it a far superior stock compared to Angie’s List.  In fact, their EPS by quarter for the past 5 years has never seen negative territory with an average of $0.24/share EPS and a range from $0.08 to $0.44. 

Overall, Ancestry.com is a best-of-breed company and there really isn’t anything else out there like it.  Because of their unique product, they can set the prices a lot higher and can even raise them if necessary.  People want to find out about their families and based on the monthly churn declining from 4.6% (June 2011) to 3.4% (June 2012), people aren’t leaving.  Monthly churn is a measure representing the number of subscribers that cancel in a quarter divided by the sum of beginning subscriber and gross subscriber additions during the quarter.  Management uses this measure to determine the health of the subscriber base.  I have not used Ancestry.com personally yet and I don’t know what I will find on the site for my family history.  However, the stock should be considered in your watch list as it is definitely moving in the right direction – up over 33% year-to-date.

ACOM Total Return Price data by YCharts

Groupon

Groupon (NASDAQ: GRPN) needs little introduction.  Its notorious 83% decline in share price since its IPO on November 7, 2011 says it all.  Groupon, together with the subsidiaries through which it conducts business, is a local commerce marketplace that connects merchant partners with consumers by offering goods and services at a discount.  They are split between two operations: North America and International. 

It is hard to recommend Groupon for anything positive in the near future.  The business model was flawed from the start in my opinion.  They admit in their latest quarterly report that they “operate in a very competitive and rapidly changing environment”.  This would be an understatement.  There are far too many competitors to list here but everyone knows that there are plenty offering far more variety in merchants and discounts than Groupon.  It is good that the company acknowledges the competitive pressure coming from companies replicating their business model, new internet startups launching their own competitive business models, and other general internet sites providing cash back or similar features.  However, it is one thing to acknowledge and another thing to act on it. 

Groupon has seen a poor EPS history even though their recent quarter, they squeaked by with an EPS of $0.04/share (June 2012).  The previous two quarters they were in the red at -$0.02 (March 2012 and December 2011).

Downgrades persist with Groupon with Barclays recently giving the company a downgrade as recent as August 20, 2012 when they changed their call from ‘overweight’ to ‘underweight’.  With a over 22% of outstanding shares being shorted, it looks like many traders feel Groupon has more left in the tank to drop further.

Although their cash flow in operations is rising, they are burning millions from investing activities.  They currently have an accumulated company deficit of $670.8 million as of June 30, 2012.  For this year alone, they have burned through over $100 million for investing activities due to rapid expansion of their International operations, which involved investing heavily in upfront marketing, sales, and infrastructure.  Maybe the rest of the world will know what it feels like to get emails from Groupon daily.

GRPN Total Return Price data by YCharts

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