Angie’s List shares soar on first-ever quarterly profit

Shares of Angie’s List shot up 26 percent, or $3.65 a share, in trading late Thursday morning in reaction to a fourth-quarter profit announced Wednesday and an upbeat outlook for the Web-based publisher of consumer-written service provider reviews.

It was a turning point for the firm, as Angie’s List has confounded critics by plowing hundreds of millions of dollars into marketing over 16 years without ever turning a profit.

Instead, the Indianapolis-based company chose a path that depends on reaching a critical mass of paid members in a rapidly expanding number of cities, now about 200 markets.

That nirvana-like attainment of critical mass occurred in the fourth quarter, when the Indianapolis-based company posted a $2.4 million profit. That compared to a loss of $5.8 million, or 14 cents a share, in the same quarter in 2011. Angie’s List also announced that fourth-quarter revenue rose 68 percent to $46.2 million.

Company executives gave some clues as to how the company hit the milestone during a metrics-laden presentation to analysts late Wednesday. Some analysts had not expected Angie’s List to be profitable until late 2013, given the high cost of acquiring members in new markets. As the service matures its operations in several cities, expenses are expected to drop and margins improve.

Co-founder and Chief Marketing Officer Angie Hicks-Bowman said the company during the fourth quarter increased new-member sales 45 percent and increased marketing spending “only” 10 percent—resulting in a 24-percent reduction in cost per acquisition.

The value of advertising contracts from service providers—plumbers, heating contractors and such—soared 80 percent to $132.7 million.

“We’ve got everything kind of working,” said CEO William Oesterle.

“A 24-percent decline in [cost per acquisition] is obviously pretty tremendous,” Oppenheimer Securities analyst Jason Helfstein told company executives, asking how much of the efficiency improvement is sustainable.

Hicks-Bowman rattled of a list of positive trends. “I anticipate that these wins that we’ve experienced continue into [2013],” she said.

Chief Financial Officer Robert Millard put the outlook for first quarter revenue at $51 million to $52 million. That would be up sharply from first quarter 2012 revenue of $31.1 million.

For all of 2012, Angie’s List lost $52.8 million, or 92 cents a share, compared with a loss of $49 million, or $1.60 per share, the previous year. Revenue soared 73 percent to $155.8 million.

“We made significant investments in our business during the year and achieved meaningful strides in our ability to monetize our membership base,” CEO Oesterle said in a statement Wednesday.

The company is pouring massive amounts of money into television advertising, fueled by $72 million in proceeds from an initial public stock offering in November 2011.

Older markets like Indianapolis tend to generate the most revenue for Angie’s List. Generally, the older the market, the higher the membership fee–roughly $63 a year in Indianapolis versus around $30 a year in a newer market like New York City.

Raymond James analyst Aaron Kessler said in a report Thursday that Angie’s List did “significantly better” than expected as far as reducing costs of acquiring new members and lowering selling expenses. It also looks on track to have a higher base of recurring service provider business.

As a result, Kessler stated, the company is set up well to “rapidly grow revenues, increase investments in products and technology and maintain a solid cash position.”