Local Reviews Sites Re-Evaluating Monetization Models

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Includes: ANGI, TACK, YELP
by: Sramana Mitra

According to a BIA/Kelsey report, the Yellow Pages industry is expected to grow to $7 billion this year. Bigger vendors like Facebook (NASDAQ:FB) and Google (NASDAQ:GOOGL) (NASDAQ:GOOG) are also entering the market by creating their own versions of review-based yellow pages. Their entry is hurting the market where digital players are already struggling to make it a worthwhile business opportunity.

Yelp's Financials

Yelp's (NYSE:YELP) fourth quarter revenues grew 40% over the year to $153.7 million, ahead of the market's expectations of $152.5 million. Net loss in the quarter of $0.26 per share, was far short of the market's forecast loss of $0.03 per share.

By segment, revenues from local advertising grew 36% to $125.9 million. Transactions revenues, which include revenues from Yelp's Eat24 and SeatMe acquisition, grew 10 times from $1.4 million a year ago to $14 million for the quarter. Brand advertising reduced 18% over the year to $7.1 million. Yelp has now completely phased out brand advertising as it was being a big drain on Yelp's profitability. Other revenues came in flat at $6.8 million for the quarter.

In operating metrics, Yelp reported that cumulative reviews grew 34% over the year to 95 million and app unique devices grew 38% to 20 million. Earlier this month, Yelp surpassed the 100 million review milestone. It ended the quarter with 66 million average monthly unique visitors on mobile and 75 million on desktop. Users have continued to decline. Mobile users were 89 million a quarter ago and 72 million a year ago and desktop users were 79 million a quarter ago. Yelp's active local advertising business accounts grew 33% over the year to 111,000, driven by international expansion and integration of Eat24 and SeatMe business.

Yelp ended the year with revenues growing 46% to $549.7 million. Net loss for the full year of $0.44 per share was significantly worse than net income of $0.48 per share reported a year ago.

For the current quarter, Yelp projected revenues of $154 million-$157 million. It expects to end the year with revenues of $685 million-$700 million. The Street had forecast revenues of $154.3 million for the quarter and $687.5 million for the year. Yelp was silent on its earlier mentioned plans of targeting revenues of $1 billion by the year 2017. Given its current performance, that target does look difficult for Yelp to achieve. Analysts have cut down expectations for 2017 to $858 million.

During the results announcement, Yelp also announced plans to replace its CFO Rob Krolik. Rob has been with Yelp since 2011 and will be stepping down from his position before the end of the year. Yelp is still looking for a replacement for the position.

Yelp's Increasing Competition

Competition for Yelp is heating up. In December last year, Facebook announced the release of a new local business focused feature. The new service displays local businesses to users based on customer reviews. Considering the reach that Facebook has, it will be a strong competitor to fend off for Yelp. It is not just Facebook. Google is also posing stiff competition as it too continues to push its own review results on the search page.

Yelp is trying to counter the move by adding newer services. Last quarter, it added a Request for Quote feature that allows users to get a price estimate. The service has seen an increase in customer queries by almost 200% over the quarter.

Yelp's stock is trading at $20.58 with a market cap of $1.6 billion. It has recovered from the 52-week low of $14.53 it had tanked to last month. The stock is still a far cry from the high of $52.51 it was trading at back in April 2015.

Angie's List's Financials

Unicorpse Angie's List (NASDAQ:ANGI) continues to stumble as well. But the company is doing a major overhaul of its business model in anticipation of delivering a turnaround. First the results.

For the fourth quarter of the year, Angie's List saw revenues grow 5% over the year to $86.3 million. It ended the quarter with an EPS of $0.24. The market was looking for revenues of $87.7 million and an EPS of $0.26. It ended the year with revenues of $344.1 million and an EPS of $0.17.

In operating metrics, total paid memberships increased 8% to nearly 3.3 million. Marketing costs per paid membership increased 7% to $29.

By segment, service provider revenues grew 9% to $69.7 million. The increase was offset by a decline in membership revenue of 8% to $16.6 million. The decline in membership revenues was attributed to the introduction of tiered pricing, which reduced average membership fees across all markets. Angie's List began offering a tiered membership plan two years ago, hoping to add more subscribers. But the plan backfired when the company realized that subscribers were opting for the cheapest plan instead, causing the decline in membership revenues despite the growth in members.

Angie's List Revises Monetization Plan

Angie's List now plans to change its monetization model by shifting to a freemium service. It has not revealed many details of the plan, but the company is now considering the option of a free subscription with the ability to upsell premium features to its paying subscriber base. The change is a part of its Profitable Growth Plan that will end the ratings and reviews paywall. Angie's claims to be seeing impressive consumer engagement and service provider value results in the pilot phase of these changes. Premium services include emergency service hotlines and services that guarantee a pre-qualified handyman in the consumer's home within a few hours of a call. It is hoping that the new model will help bring in additional $750 million by the year 2020.

Its stock is trading at $8.06 with a market capitalization of $472.6 million. The stock touched a 52-week high of $11.25 in November last year and has recovered from the 52-week low of $3.73 in July last year.

Thumbtack's Financials

Meanwhile, the unlisted Thumbtack (Private:TACK) appears to be doing well so far. Unlike Angie's List, Thumbtack not only provides a listing and a review of local professionals, it also connects these service providers with potential clients through a bidding process. Consumers are able to submit details on the work needed and vendors are able to bid on these projects. This customized process ensures a higher success rate for vendors. In return, Thumbtack earns revenues through a fee that it charges the vendors for each bid. Despite the different monetization approach, Thumbtack is expected to be unprofitable. It does not disclose its revenues, but it has helped generate more than $1 billion in revenues for its professionals.

Thumbtack is venture funded with $273.2 million from investors including Baillie Gifford, Google Capital, Sequoia Capital, Draper Associates, Javelin Venture Partners, Tiger Global, MHS Capital along with several angel investors. Its last round of funding was held in September last year when it raised $125 million from Baillie Gifford, Tiger Global, Google Capital and Sequoia Capital at a valuation of $1.3 billion. The round raised Thumbtack's valuation from $750 million a year ago.