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One of the many lessons of investing in social media stocks is this: Companies that create a system in which vast amounts of free content wash around often find themselves awash in money.

It's worth thinking about as Twitter Inc. heads for its initial public offering, perhaps as early as this coming week. It's also worth thinking about as we look at two other social-media companies that have taken divergent paths from their IPOs of roughly two years ago.

Yelp Inc. and Angie's List Inc. both run websites that allow consumers to review businesses in a wide range of industries. Yelp's early focus was restaurant reviews, while Angie's List has been centred on evaluations of home-improvement companies. Both websites have yet to turn a profit, but both have seen their revenues surge.

The key difference between their business models is that Yelp has always been a free site where anyone can post reviews after a simple registration. In contrast, Angie's List charges a fee to anyone who wants to use its site, based on its conviction that good advice about expensive home repair is worth paying for.

The key difference between their stocks is that Yelp is up fourfold since its February, 2012, IPO, while Angie's List is now struggling to stay above its debut price in November, 2011. The results suggest that in the social-media space, "free" is still a winning strategy.

Being free may be better than being polished. It has been easy, particularly for those who write for a living, to make fun of the quality of Yelp's user-generated reviews. While Yelp has a filtering system to obscure unhelpful comments, what it publishes is still a mixed bag. Many reviews are too earnest. Many are overlong. Some are semi-literate. And often, the ratings for a single business can be all over the place.

And yet, bottom line, people are using the site. In the fourth quarter of 2011, prior to its IPO, Yelp's website had 66 million unique visitors. In the third quarter of 2013, that audience had nearly doubled, to 117 million worldwide. The number of reviews on the site grew 42 per cent over the year ending Sept. 30, to 47.3 million. All of that feeds into Yelp's core business model, which is to cash in on those millions of eyeballs by selling advertising.

When a company grows engagement like Yelp has, it can grow its revenue quickly even if it's not deriving much money from each user. Yelp collected only about $1.25 (U.S.) in revenue for each unique visitor in 2011, the result of selling ads and other marketing aids to businesses that want to reach its audience. However, if you extrapolate the third-quarter 2013 results over a full year, the number rises to more than $2 per unique visitor. More revenue per user, and many more users, equals much more revenue. The third-quarter results showed the company's top line soaring 68 per cent gain from a year earlier, to $61.2-million.

To be sure, Yelp shares retreated slightly, to $67, after it announced the quarterly results on Tuesday. The company lost more money – $2.3-million – than analysts expected, which it blamed on the cost of investing in its business. Some investors also disliked a $250-million stock offering that would dilute current holders.

Over the course of 2013, however, the story has been a rise in the shares that has left analysts' expectations in the dust. Kerry Rice of Needham & Co. says the company is in "the early innings" of executing a "very substantial" opportunity. Yelp has purchased a company called SeatMe that will allow it to compete with OpenTable in the restaurant-reservations business. Its "Call To Action" product allows businesses to promote a specific transaction, like a coupon or event ticket.

Mr. Rice has a "buy" rating on the stock and a $78 target price, raised from $52 in September. That represents 15 times estimated 2014 sales (not profits), which is a dizzying altitude for most stocks. But Mr. Rice believes Yelp is worth a premium price tag. "While valuation remains steep, we believe it is justified given the potential for top-of-the-class growth for years to come."

The growth picture at Angie's List is also impressive by normal standards, but recent results raise questions about just how big the company can get. While Angie's List missed expectations on revenue and earnings in its most recent quarter, and cut its revenue guidance, the most troubling numbers it unveiled had to do with subscribers. There were only 2.38 million of them, which was below estimates, while net subscriber additions were smaller than the year before.

This occurred despite a pricing experiment at the end of the third quarter in which Angie's List sold annual memberships in a number of markets for $10, versus a previous price of around $40, according to The Wall Street Journal. In the company's original core markets, fees per member topped $50 as recently as 2011.

Angie's List has yet to find the magic mix between how much revenue it should derive from members' fees and how much it should garner from charging service providers to place ads. It has been shifting more toward advertising in recent years. While about 43 per cent of the company's revenue came from membership fees in 2010, only 27 per cent did so in the first nine months of 2013.

It would be in advertisers' interest for Angie's List to have more users, yet annual membership fees are an obstacle to increasing the size of the website's audience. One easy solution would be to eliminate the membership fee. The company, however, insists it will remain.

Andre Sequin, an analyst with RBC Dominion Securities' U.S. arm who has an "outperform" rating on Angie's List, agrees with that strategy, although he recently dropped his share price target from $29 to $24.

"It does a few things if you have someone pay something," he says. "[Clients are] putting in their credit-card information, so you know who the person is and that gives you more security that this is a real person who's not leaving fake reviews. And if you charge something, it gives you the impression of value, and the Angie's subscriber feels better about who's on the site."

Yelp, however, has found even more success, so far, in not asking its users to pay anything – a model that may create more surprisingly successful investments in social media. Twitter investors, take note.