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The small-cap online review company called Angie's List (ANGI) has something new to worry about. There is new competition in the fast-growing online review space. San Francisco based start-up Thumbtack.com is now after a huge piece of the local services referral business. The company has operated for four years and has built a database in excess of 250,000 service professionals who pay Thumbtack.com referral fees. In comparison, Angie's List only has 39,265 service providers who pay fees, according to the company's latest quarterly report. It is surprising that such a small start-up has overtaken Angie's List in such a short time. The business model at Thumbtack is very different to that of Angie's List and may provide some clues as to why Thumbtack has been so successful in gaining market share.

Here's how Thumbtack is different:

Thumbtack does much more than just provide reviews; it actually provides quotes from local service providers for the work that the consumer wants performed. This model much more efficiently puts consumers in contact with businesses. Angie's List consumers still need to reach out to each services provider individually. Another striking difference to the Angie's List model is that there are no fees to the consumer for using the Thumbtack service. In comparison, Angie's List users must pay a subscription based fee to read reviews and access service providers.

Here's how it works according to the Thumbtack.com website:

Step 1: Tell us about your needs
Answer a few simple questions.
We'll keep your email private, so no spam.
Go about your day, we'll take it from here.

Step 2: Get quotes within 24 hours
We'll find pros who are available and interested.
Thumbtack emails you up to 5 quotes.
Each quote is customized to your needs.

Step 3: Compare quotes & hire the best pro
See the full picture: prices, reviews, profiles and more.
Compare prices to get a great deal.
Call or message to discuss the work.

Outlook for Angie's List:

I've long felt that Angie's List was overvalued based on the threat of competition in a space that has few barriers to entry. While growth at ANGI has been strong the last few years, competition has been heating up. Thumbtack's management is very aggressive and has big plans according to this quote from the CEO Marco Zappacosta via Bloomberg:

The long-term vision is to build the Amazon (AMZN) for services.

Sounds like Angie's List should take notice if Amazon-like scale could be achieved. There are others in the space as well. For example, Homeadvisor.com provides a nearly identical service to Angie's List. It can also be argued that Yelp (YELP) could easily get into this space as well, as they already have much on online review business and a viable model.

Valuation:

ANGI stock is not cheap and reflects that the market expects them to grow into the stock price. As of this writing, the stock trades at 8.72 times trailing sales. Furthermore, book value is slightly negative, so any value to the stock's price must be derived from future earnings, not net assets. Consensus earnings estimates for 2014 is $0.31 on sales of $339M, which at the current price of $26.70, implies a forward P/E of $86.13. If competition provides a headwind that the Street has not anticipated, the stock may be as much as 50% overvalued, if you think that a 40 P/E is more reasonable for a stock with limited visibility and high expectations.

Source: New Competition Poised To Attack Angie's List