Angies List Initiate

8/2/2019 Angies List Initiate

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Angie's List, Inc. ANGI: $16.10Buy Price Target: $22.00

ANGI: Initiating Coverage with a Buy Rating and $22Price Target

THINK ACTION:We initiate coverage of Angie's List (ANGI) with a Buy rating and $22 price target(8X FY12E EV/S). With its unique, user-content driven model, we believe thecompany is well positioned to benefit from the current positive trends aroundhome service providers adopting online channels to acquire new customers andto grow their businesses. In our view, ANGI is currently at an inflection point inwhich its fast-growing recurring revenue base is large enough to begin to offset itshigh marketing costs, which should lead to accelerated margin expansion whileimproving its visibility.

KEY POINTS:

We believe ANGI's recurring revenue streams provide a high level ofvisibility into one of the fastest growing Internet companies in theindustry. Its paid membership business, driven by annual subscriptions, and itsservice provider business, driven by annual advertising contracts, provide highlyrecurring revenue streams. Its membership business has a renewal rate in themid-to-high 70s, and its advertising business with service providers has a renewalrate of approximately 70%. Hence, we estimate that renewals each quarter, whichare not reflected in the deferred revenue balance in the prior quarter, shouldprovide about 20% of revenue. About 35-40% of its deferred revenue balance getrecognized the following quar ter, which provide about half of the revenue. Hence,we conservatively estimate that about 70% of its quarterly revenue is recurringin nature. We note that most service providers typically increase their contractvalue when renewing (driven by both higher advertising spend and also by higherad rates), which is not factored into our analysis.

We believe the company has reached an inflection point in its business,which should result in accelerated margin expansion going forward. Webelieve the company is currently at the inflection point, in which its past up-frontinvestment in marketing spend to obtain new subscribers are generating steady,highly visible revenue streams from membership fees and also from advertisingcontracts from service providers. These revenue streams, which in our view arehighly sustainable, are currently large enough and growing fast enough to offsetthe incremental investments the company needs to make to enter new marketsand ramp-up newer markets. This should be evident in its quarterly EBITDAmargin trend, which we believe will start to show y/y improvement beginning inthe first quarter of FY12 after two years of declines.

Initiate coverage with a Buy rating and $22 price target. Shares trade at anenterprise value to sales multiple of 6x based on our CY12 estimates, vs. its peeraverage of 4x. Given our belief that ANGI's business model provides one of thehighest revenue visibility in the online media industry, we have high confidencein our projected 61% revenue growth this year from our 49% revenue growthestimate in FY11. Because much of the current marketing spend is essentiallyan investment in its future revenue streams, we believe we can obtain an intrinsicvalue of its current business by excluding much of the current marketing spendand obtaining a net present value of its business driven by highly recurringrevenue stream. Our analysis indicates that the current business is worth about$1.2B (or about $20.50/share). Given that we have not assigned any value to itsfuture return on its planned marketing spend beyond FY13 and to its businessmodel itself, we believe $1.2B valuation is fairly conservative. With a net cashposition of ~$1.66 per share, we are assigning a price target of $22.

Internet

Yun Kim

212-468-7011, [email protected]

Changes Current Previous

Rating Buy --

Price Target $22.00 --FY11E REV (M) $87.9E --FY12E REV (M) $141.5E --FY11E EPS ($0.86)E --FY12E EPS ($0.77)E --FY11E EBITDA ($39.20)E --

FY12E EBITDA ($38.20)E --

52-Week High: $18.75

52-Week Low: $10.77

Shares O/S-Diluted (M): 57.7

Market Cap (M): $929.0

Average Daily Volume: NA

Short Interest: 5.3%

Debt/Total Cap: 2.0%

Net Cash Per Share: $1.66

P/E (12-month forward): NA

Est. Long-Term EPS Growth: NA

P/E/G: NM

Fiscal Year-End: Dec

REV (M) $ 2010A 2011E 2012EMar 13.0A 17.6A 28.5E

Jun 14.5A 21.0A 32.9E

Sep 15.5A 24.0A 38.1E

Dec 16.1A 25.3E 42.0E

FY 59.0A 87.9E 141.5E

FY P/S 15.7x 10.6x 6.6x

EPS $ 2010A 2011E 2012E

Mar NA NA (0.17)E

Jun NA NA (0.26)E

Sep NA NA (0.26)E

Dec NA (0.11)E (0.08)E

FY NA (0.86)E (0.77)E

FY P/E NM NM NM

EBITDA $ 2010A 2011E 2012E

Mar (2.68)A (7.74)A (8.01)E

Jun (5.08)A (14.19)A (13.47)E

Sep (5.84)A (13.80)A (13.70)E

Dec (1.11)A (3.47)E (3.02)E

FY (15.05)A (39.20)E (38.20)E

Please see analyst certification (Reg. AC) and other important disclosures on pages 14-15 of this report.

January 3, 201

Company ReporInitiation of Coverage


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January 3, 201

Company Repo

INVESTMENT THESISOnline home services/improvement referral business represents one of the fastest growth segments within thlocal online advertising opportunity. In our view, local online advertising represents the next logical and the next b

growth opportunity for all online advertising providers. According to BIAs Kelsey Group, the local advertising market (boonline and offline) in the U.S. is expected to be about $135.9B in 2011, with online spending representing about $23.3(or 17.2%). The firm expects the online share of the local advertising spend to increase to 25.4% by 2015, representingfour-year CAGR of 13%. Our checks indicate that the home improvement and services segment is currently one of thlargest and is likely to be one of the fastest growth segments within the local online advertising market, especially in tharea of new customer acquisition. We believe ANGI, with its highly differentiated and proven advertising solutions, is wepositioned to continue to capture leading market share in this fast growing market segment.

High revenue visibility unmatched in the industry. In our view, ANGIs unique business model, provides a level revenue visibility that is simply unmatched in the online media space. Its two revenue streams, membership fees anadvertising contracts, provide highly predictable and sustainable revenue streams. Its typical member subscription is year-long membership, and the average advertising contract is about 14 months long. We believe the companys deferrerevenue balance from membership fees and advertising revenue provide significant visibility into its revenue streams ove

a one year period. Almost 40% of its deferred revenue balance is expected to be recognized next quarter; about 30% the balance is expected to be recognized two quarters later; about 20% of the balance is expected to be recognized threquarters out; and about 10% of the balance four quarters later. In addition, we expect these revenue streams are currentramping up at an accelerated rate, and we expect revenue growth rate to increase to 49% in FY11 from 29% growth FY10. We expect revenue growth rate in FY12 is to accelerate to 61%. We note that advertising revenue from its servicprovider business is the main driver of its margin leverage, and we expect its service provider business to grow faster thaits membership business over the next several years.

The company has reached an inflection point in its business model. We believe the company is currently at thinflection point, in which its past up-front investment in marketing spend to obtain new subscribers are generating steadhighly visible revenue streams from membership fees and also from advertising contracts from service providers. Thesrevenue streams, which we believe are highly sustainable, are currently large enough and growing fast enough to offsthe incremental investments the company needs to make to enter new markets and ramp-up newer markets. This shou

be evident in its EBITDA margin trend, which we expect to show y/y improvement beginning in FY12 after two years odeclines.

Immediate market opportunity to monetize on its relationship with home service providers. We believe ANGI hasunique opportunity to expand on its current relationship with home service providers. In our view, the company caprovide many of the back-office functions such as schedule management and mobile payment solutions. We believcross-selling and up-selling additional products and services to its large advertiser base of home service providers shouprovide incremental revenue growth opportunity with better margin leverage than if it were to pursue expansion into nevertical.

Recognizable consumer brand. We believe ANGI has built a highly recognizable, trusted brand that consumers seewhen hiring the right home service providers the first time. In our view, this name recognition is something that is rare the online customer acquisition space and serves as a significant competitive advantage over its competitors.

Paying members result in higher quality content and more user interaction, leading to better review site. In oview, ANGI has developed a unique but highly effective way to control the quality of content on its review site. It chargemembers to have access to one of the largest database of highly sought-after reviews of local contractors and servicproviders. The high quality of these reviews, in turn, leads both new and existing subscribers to post their reviews that asimilar in quality. There are no anonymous posts, which the company believes increases the integrity of the reviews. Alswe believe many subscribers feel the sense of belonging to a community and contribute reviews more often than othfree-access review sites. About 37% of its subscribers contributed at least one review in 2010.

Pay model that sticks. We believe ANGI perfected the stickiness of the paying membership model. While there amany local review sites for various products and services, we believe ANGI has built a large database of proprieta

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January 3, 201

Company Repo

content in the local home services market that is simply unmatched in the marketplace. Also, due to the relatively higprice of service on which many homeowners are seeking advice, many are willing to pay a high fee to hire the rigservice provider the first time. Hence, we believe ANGI offers a strong value proposition for many homeowners, and ilarge subscriber base (1M+) and its high renewal rate (in the high 70s) are validation of the service it provides to i

subscribers. Once a homeowner becomes a paying subscriber to ANGI, we think it is highly unlikely that the homeownis going to pay to belong to another similar review site. Also, having paid a subscription fee, we feel homeowners are liketo utilize ANGIs services more often, which, in turn, creates higher usage, gains more value, and generates moreviews. We also note that most memberships are automatically renewed. Its pay member renewal rate has beetrending upwards in recent quarters to mid-to-high 70s.

INVESTMENT RISKS:Increasing competition. We consider the home services market to be the next large opportunity for lead generatiovendors after mortgage, online education and auto insurance. With the success of ANGI and other players targeting thonline opportunity in the home services and improvement market, we expect competition to intensify as new players entthe market. Specifically, we expect traditional lead generation vendors who have strong heritage in the mortgage and/online education areas to aggressively pursue this market opportunity, much like they went after the auto insurance lea

generation market over the past few years. While ANGIs subscription fee business is not likely be impacted from growincompetition, its service provider business could be impacted as local contractors and home service providers are likely thave more options in regards to advertising and paying for referrals. We note that traditional lead generation vendors amore focused on delivering actual customer leads rather than providing advertising solutions, which some of ANGIs targservice providers may find more attractive.

Other consumer review sites and Google potentially entering this market . We believe Yelp!, Facebook, Google, another established online media companies with a large user base to enter ANGIs target market directly or indirectlAlready Yelp! has expanded its review site to include home services categories. We also see Facebook and its large usebase already providing indirect competition. For instance, a Facebook user can easily receive contractor and homservice provider recommendation from his or her friends by simply posting a request on the wall. We also see Googcontinuing to ramp up on its lead generation services beyond mortgage. We note that it already announced its plans to ginto the automotive lead generation space. Finally, Groupon and other daily deal vendors, with their large email subscrib

base and their knowledge of local markets, could more aggressively pursue the home services market opportunity. Wnote that ANGIs The BigDeal offering, which is largely a Groupon-like, email-based discount promotions, has beensuccess for the company.

Heavy up-front acquisition cost associated with new subscriber acquisition. In our view, at the core of ANGbusiness model is the number of paying subscribers. The higher the number of paying subscribers, more revenue generated from its membership business. Also, more service providers will likely want to advertise their services on ANGwhich leads to higher advertising revenue from its service provider business. Hence, the company invests heavily growing its subscriber base, especially in a new city it recently entered or trying to ramp up an existing city to reach ainflection point in its subscriber base where the network effect could accelerate in attracting new subscribers. Since theris considerable lag before any revenue is generated from the up-front investments it makes to acquire subscribers, theis a high level of risk associated with these investments in the companys core business. In addition, the actual level return-on-investment (ROI) and predictability of ROI in each city have to be consistent for this up-front investment to tuprofitable after a certain period of time. An unexpected decline in ROI in any market or a slower than expected ramp coupotentially have a negative impact on its overall financial results, in our view.

Our current ANGIs model assumes CPA (cost per acquisition) costs will trend lower. We note that ANGsubscriber acquisition costs have been trending lower in 2011 vs. 2010 levels. In our view, one of the key drivers of thcompanys margin expansion over the next several years is lower member acquisition cost. As the co mpany utilizes moaffiliates and other online forms of customer acquisitions methods, we believe it may eventually encounter higher rates athe competition for these highly sought-after users intensifies with more players entering ANGIs core market. One item note is that the network effect (or word of mouth) associated with its members can drive the overall acquisition cosdown considerably, and we expect the network effect to increase as ANGI continues to grow its subscriber base.

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Company Repo

Acquisition risks. The company may decide to pursue new verticals beyond its core home services market. It haalready expanded into the health and wellness sector and also antique cars. We believe the company is likely to acquiexisting entities to acquire vertical expertise rather than to expand organically. As with any acquisition, there will likely besignificant level of integration risk along with unexpected costs that could impact its margins and its growth plan.

BUSINESS MODEL OVERVIEW:ANGIs business model is largely based on generating advertising revenue from home service providers. However, at thheart of ANGIs model are the members who generate high quality reviews of home service providers. When a compaenters a new market, it initially focuses mainly on building a large member base to start generating reviews, which return attracts new members. After enough members have signed up and a large number of reviews have beegenerated, the company starts to solicit advertising opportunities targeted at its members to local home service providermany of whom have received favorable reviews. We believe the key to having a successful presence in each local markis simply having a high volume of high quality reviews, which is mainly driven by the number of members in that markeHence, the company spends aggressively to attract new members to reach the critical mass of members for that markewhich serves to not only protect its market share from other players,but also significantly reduces marketing costs as tnetwork effect begin to drive a higher mix of new member sign-ups. The inflection point in profitability for each market

reached when the advertising revenue from home service providers begin to accelerate and offset the cost of marketinassociated with attracting new members.

The company has a presence in at least 175 local markets in the U.S. It was in 10 markets prior to 2003. It expanded int35 markets between 2003-2007, mainly in large metropolitan areas, and 103 markets between 2008-2010. We note thbecause of the national advertising campaigns the company heavily relies on, its market penetration rate in the smallmarkets tends to be higher and faster than that of larger markets, which require additional advertising outlets to reach thtarget demographics.

Member business segment (38% of revenue in FY11; 32% revenue growth rate in FY11)

Its member business is driven by paid subscriptions, which can be either monthly, annually or multi-yeaTypical one year membership for the core home service reviews ranges from $29 to $39, depending othe market and the discount. A bundled membership, which includes home services and health

wellness, is about $20 more per year. Its monthly paid subscribers typically represent less than 15% of total paid members, although about 25% of its new subscribers initially start on monthly plan. As September 30, 2011, about 87% of its total members were on either annual or multi-year subscription. Irenewal rate for annual and multi-year subscribers has been trending upwards in recent years, indicatinto us increasing value of the service provided by ANGI as its member base continues to increase. Iaverage membership renewal rate has increased from 70% in FY08 to 73% in FY09 to 75% in FY10 anto 70% in the first three quarters of FY11. We note that renewal rate for first-year members is slightlower. Subscription revenue is recognized ratably. The portion of subscription fees that is not recognizeis reflected in the deferred membership revenue balance. About 40% of the balance is revenue that scheduled to be recognized the following quarter, 30% in two quarters, 20% in three quarters and 10% four quarters.

The company spends a significant amount in marketing to attract new subscribers. It has historically spemore on marketing than the revenue generated from paid memberships, and we are projecting this trento continue in the near-term (at least until FY13). About 65-70% of its marketing is spent on TV ads, anabout 10% is spent on radio. Online marketing and advertising channels, including use of affiliatecurrently make up about 15-20% of its marketing spend.

Service provider segment (62% of revenue in FY11; 61% revenue growth rate in FY11)

Its service provider business is primarily driven by advertising contracts with local home service provideService providers can advertise to ANGIs members through the website, email promotions, monthmagazine and call centers. We note that ANGIs members grade each local servi ce provider on an A toscale. Only those service providers with an average grade of at least B is permitted to advertise on ANGAs of September 30, 2011, about 815K service providers were reviewed, and about 210K of them (26%) had earned at least an average grade of B. Of these service providers that were eligible to advertis

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Company Repo

on ANGI, about 10% of them were active advertisers. The average advertising contract length is about 1months, and the revenue is recognized ratably. The portion of the contract that is not recognized but invoiced is reflected in its deferred advertising revenue balance. About 35% of the contract value backlog is revenue that is scheduled to be recognized the following quarter, 30% in two quarters, 20%

three quarters, 10% in four quarters and 5% in five quarters. We note that the company plans to providtotal contract value at its quarterly earnings conference call, along with the number of service providers. We highlight that the sales commission rate on advertising contracts with new service providers is abo

60%, while the commission rate on renewals is about 10%. The company estimates that about 60% of service providers renew their advertising contract after the first year, while 80% renew their contracts aft4 years. We note that this renewal rate does not account for the high failure rate of small businesseespecially in the local home service sector. As the member base of a particular market increases, ANGtypically charges higher advertising rates.

At each quarterly earnings conference call, we expect the company to provide the following metrics: service providgrowth, contract value, along with paid membership growth. We believe these three metrics are leading indicators of thcompanys growth and visibility.

Exhibit 1:

Source: Company reports and ThinkEquity LLC estimates.

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Company Repo

Simply put, in our view, the companys growth is driven by growth in its members. More members generate a highnumber of quality reviews, which in turn attracts more pay members. More members also attract service providers whwant to advertise to these highly sought-after potential customers, and advertising rates increase as more members aadded to each local market. The company has shown a 41% CAGR in its total pay membership from FY06 to FY10. Wi

higher marketing spend over the past two years, we expect its total pay memberships to accelerate. We are expecting52% CAGR from FY10 to FY13.

Exhibit 2:

Source: Company reports and ThinkEquity LLC

Contract value growth and number of service provider growth are key leading indicators of the companys business in oview, and they also represent visibility into its business. We note that both contract value and service provider growt

have been accelerating over the past two years, and we expect this trend to continue as membership growth has alsbeen accelerating.

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Company Repo

VALUATIONWe initiate with a Buy rating and $22 price target. Shares recently traded at 6x our CY12 revenue estimate. We aestimating that the current diluted share count, after the initial public offering on November 17

th, 2011, currently stands

about 57.7M shares. Since the company is not currently profitable, nor do we expect it to be until FY14 at the earliest, w

believe it is difficult to value the company on an earnings or EBITDA basis based on projected profitability several yeaout. However, given the high revenue visibility provided by its business model and the fact that much of the curremarketing spend can be classified as investment in its future business, we believe one can obtain an intrinsic value of icurrent business by excluding the current marketing spend level. If we exclude our FY13 marketing spend estimate $91M from our negative EBITDA estimate of ($7.4M), we obtain positive EBITDA value of $83.4M. We note that thprofitability level represents the return on investment (ROI) it already made in prior years and represents the overaprofitability of its mature markets. In our view, this EBITDA should continue to increase every year as its mature markecontinue to grow its subscriber base largely through the network effect and minimal marketing spend. If we assign conservative 5% perpetual annual growth rate to this profitability level, we obtain a 14x multiple on this profitability bassuming 2% current risk-free rate of return and 4.5% historical risk-free rate of return. Applying a 14x multiple on $83.4EBITDA yields an intrinsic value of $1.2B (or $20.50/share), which we believe represents a conservative value of thinvestments the company has already made in its business. We estimate that the company currently has a net casposition of about $95M or $1.66 per share. We highlight that our $1.2B valuation does not include the ROI on th

marketing spend the company plans to make in FY13 and beyond, and it does not assign any value on the businesmodel itself. $1.2B valuation simply reflects the expected ROI in investments the company has made in its marketispend through FY12. Hence, we believe our $22/share price target is conservative.

RISKS TO PRICE TARGET:Risks to the attainment of our price target include: 1) increasing competition; 2) increasing member acquisition cost; 3)drop in renewal rate of its members and advertisers from current levels; 4) increasing seasonality in its business; 5acquisition risks; 6) inability to manage its margin expansion; 7) current U.S. economic conditions; 8) any meaningfdelays in penetration rates of a strategically significant market; 9) inability to attract new advertisers; 10) pricing pressuon its member fees and advertising rates.

COMPANY DESCRIPTION:Angies List, Inc. operates a consumer-driven, paid membership website for its members to research, hire, rate, anreview local professionals for home, health care, and automotive service needs in the United States. The companfocuses on delivering to its members trusted ratings and reviews of local service providers; providing the opportunity fohighly-rated service providers to offer their members discounts and other promotions on local services; and advocating fits members to resolve their complaints with local service providers. The company currently has more than one milliopaid memberships in 175 local markets in the U.S. The company went public on November 17

th, 2011. Angies List, In

was founded in 1995 and is headquartered in Indianapolis, Indiana.

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Yun

212-468-7

ykim@thinkequity.

ANGI Earnings Model$ million, except EPSFiscal year ending Dec 31

FY06 FY07 FY08 FY09 1Q 2Q 3Q 4Q FY10 1Q 2Q 3Q 4QE FY11E 1QE 2QE 3QE 4QE FY12E FY13Business Segments FY FY FY FY Mar-10 Jun-10 Sep-10 Dec-10 FY Mar-11 Jun-11 Sep-11 Dec-11 FY Mar-12 Jun-12 Sep-12 Dec-12 FY FY

Membership 6.44 10.80 15.94 20.43 5.79 6.18 6.46 6.72 25.15 7.03 7.94 9.10 9.22 33.29 9.72 10.81 12.49 13.50 46.53 64q/q change 6.6% 4.6% 4.1% 4.6% 1 2.9% 1 4.6% 1.3% 5.5% 1 1.2% 1 5.6% 8.1%

y/y change - 67.8% 47.5% 28.2% 23.1% 21.4% 28.6% 40.9% 37.1% 32.4% 38.2% 36.1% 37.3% 46.5% 39.8% 3 9

Service rovider 6.78 12.30 17.93 25.17 7.20 8.30 9.00 9.39 33.89 10.60 13.02 14.90 16.07 54.58 18.79 22.07 25.65 28.46 94.97 143q/q change 15.3% 8.4% 4.3% 12.9% 22.9% 14.4% 7.9% 17.0% 17.5% 16.2% 11.0%

y/y change - 81.3% 45.8% 40.4% 34.7% 47.1% 56.8% 65.6% 71.2% 61.1% 77.4% 69.5% 72.1% 77.1% 74.0% 5 1

Total Revenue 13.22 23.10 33.86 45.60 12.99 14.48 15.46 16.11 59.04 17.63 20.96 24.00 25.29 87.87 28.51 32.88 38.14 41.96 141.49 208

y/y change - 75% 47% 35% - - - - 29% 36% 45% 5 5% 57% 49% 62% 57% 59% 66% 61%

Operating Expenses (excl. ESO costs)

Operations and support 6.33 8.93 12.16 11.65 2.83 3.06 3.39 3.19 12.46 3.40 4.20 4.70 5.24 17.53 5.40 6.16 6.95 7.30 25.81 35

% of Revenue 47.9% 38.7% 35.9% 25.6% 21.7% 21.1% 21.9% 19.8% 21.1% 19.3% 20.0% 19.6% 20.7% 20.0% 18.9% 18.7% 18.2% 17.4% 18.2% 17

% of Membershp revenue 98.4% 82.7% 76.3% 57.0% 48.8% 49.5% 52.4% 47.5% 49.6% 48.3% 52.9% 51.6% 56.8% 52.7% 55.6% 57.0% 55.6% 54.0% 55.5% 55

Selling 4.39 8.55 10.10 12.67 3.60 4.06 4.47 4.76 16.89 6.08 7.57 8.74 8.82 31.21 9.18 10.15 11.29 11.78 42.40 56

% of Revenue 33.2% 37.0% 29.8% 27.8% 27.7% 28.1% 28.9% 29.6% 28.6% 34.5% 36.1% 36.4% 34.9% 35.5% 32.2% 30.9% 29.6% 28.1% 30.0% 27% of Service provider revenue 64.6% 69.5% 56.3% 50.3% 50.0% 48.9% 49.7% 50.7% 49.8% 57.4% 58.2% 58.6% 54.9% 57.2% 48.8% 46.0% 44.0% 41.4% 44.6% 39

Marketing 6.76 8.84 14.94 16.11 6.04 9.43 9.67 5.11 30.24 11.10 18.13 18.76 7.76 55.75 14.45 22.25 25.68 17.62 80.00 90

% of Revenue 51.1% 38.3% 44.1% 35.3% 46.5% 65.1% 62.5% 31.7% 51.2% 63.0% 86.5% 78.2% 30.7% 63.4% 50.7% 67.7% 67.3% 42.0% 56.5% 43

% of Membershp revenue 105.1% 81.9% 93.8% 78.9% 104.2% 152.7% 149.7% 75.9% 120.2% 157.8% 228.4% 206.1% 84.2% 167.5 % 148.7% 205.8% 205.5% 130.5% 171.9% 139

Technology 1.48 2.38 4.61 5.06 1.32 1.37 1.51 1.58 5.77 1.61 1.82 2.22 2.66 8.31 2.31 2.41 2.53 2.74 10.00 11

% of Revenue 11.2% 10.3% 13.6% 11.1% 10.2% 9.5% 9.7% 9.8% 9.8% 9.1% 8.7% 9.2% 10.5% 9.5% 8.1% 7.3% 6.6% 6.5% 7.1% 5

General and administrative 3.38 7.09 8.70 8.62 2.23 2.32 2.61 2.95 10.10 3.55 3.82 3.82 4.78 15.97 5.74 5.99 6.07 6.26 24.06 25

% of Revenue 25.6% 30.7% 25.7% 18.9% 17.2% 16.0% 16.9% 18.3% 17.1% 20.1% 18.2% 15.9% 18.9% 18.2% 20.1% 18.2% 15.9% 14.9% 17.0% 12

Total operating expenses 22.33 35.79 50.51 54.12 16.02 20.24 21.63 17.58 75.47 25.74 35.54 38.23 29.26 128.77 37.08 46.97 52.51 45.70 182.26 220Non -G AAP o per at in g I nc om e (9 .12 ) ( 12. 69) (1 6. 65) ( 8. 52) (3 .02 ) (5 .76 ) (6 .18 ) ( 1. 47 ) (1 6. 43) (8 .11 ) ( 14 .59 ) (14 .23 ) ( 3. 98 ) (4 0. 90) (8 .57 ) (14 .08 ) (1 4. 37) ( 3. 75) (4 0. 77) ( 11

Operating Margin (%) -69.0% -54.9% -49.2% -18.7% -23.3% -39.8% -40.0% -9.1% -27.8% -46.0% -69.6% -59.3% -15.7% -46.5% -30.0% -42.8% -37.7% -8.9% -28.8% -5

Depreciation and amortization ? 1.77 1.52 0.34 0.68 0.34 0.36 1.38 0.37 0.40 0.43 0.51 1.70 0.56 0.61 0.67 0.73 2.57

Adjusted EBITDA -9.12 (12.69) (14.88) (7.01) (2.68) (5.08) (5.84) (1.11) (15.05) (7.74) (14.19) (13.80) (3.47) (39.20) (8.01) (13.47) (13.70) (3.02) (38.20) (7

Adjusted EBITDA Margin (%) -69.0% -54.9% -43.9% -15.4% -20.7% -35.1% -37.8% -6.9% -25.5% -43.9% -67.7% -57.5% -13.7% -44.6% -28.1% -41.0% -35.9% -7.2% -27.0% -3

Interest income/(expense) (2.09) (2. 95) (3.60) (3.38) (0.95) (0.99) (1.03) (1.00) (3.97) (0.94) (0.87) (2.54) (0.50) (4.85) (0.50) (0.50) (0.50) (0.50) (2.00) (2

I nc ome be fo re i nc ome t ax es ( 11 .21 ) ( 15. 64) (2 0. 24) (1 1. 91) (3 .97 ) (6 .75 ) (7 .20 ) ( 2. 47 ) (2 0. 39) (9 .04 ) ( 15 .46 ) (16 .77 ) ( 4. 48 ) (4 5. 75) (9 .07 ) (14 .58 ) (1 4. 87) ( 4. 25) (4 2. 77) ( 13

Provision for income taxes 0.00 0.00 0.00 0.00 0.00 0.15 0.00 0.01 0.15 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1Effective Tax Rate 0.0% 0.0% 0.0% -10.9% 11

Non-GAAP net income (11.21) (15. 64) (20.24) (11.91) (3.97) (6.90) (7.20) (2.48) (20.55) (9.04) (15.46) (16.77) (4.48) (45.75) (9.07) (14.58) (14.87) (4.25) (42.77) (15

Non-GAAP EPS (diluted) (0.08)$ (0.79)$ (0.16)$ (0.25)$ (0.26)$ (0.07)$ (0.73)$ (0$Diluted shares outstanding (in M) 57.72 57.72 57.92 58.12 58.32 58.52 58.22 5

Source: Company reports, ThomsonOne Analytics, and ThinkEquity LLC estimates.

Pag
mailto:[email protected]:[email protected]


10/15

Yun

212-468-7

ykim@thinkequity.

ANGI Earnings Model$ million, except EPSFiscal year ending Dec 31

FY06 FY07 FY08 FY09 1Q 2Q 3Q 4Q FY10 1Q 2Q 3Q 4QE FY11E 1QE 2QE 3QE 4QE FY12E FY13

GAAP Reconcilliaton FY FY FY FY Mar-10 Jun-10 Sep-10 Dec-10 FY Mar-11 Jun-11 Sep-11 Dec-11 FY Mar-12 Jun-12 Sep-12 Dec-12 FY FY

Non -G AAP O pe ra ti ng I nc om e (9 .12 ) ( 12. 69) (1 6. 65) ( 8. 52) (3 .02 ) (5 .76 ) (6 .18 ) ( 1. 47 ) (1 6. 43) (8 .11 ) ( 14 .59 ) (14 .23 ) ( 3. 98 ) (4 0. 90) (8 .57 ) (14 .08 ) (1 4. 37) ( 3. 75) (4 0. 77) ( 11

Stock-based compensation 0.00 0.06 0.08 0.08 0.09 0.00 0.85 5.76 6.70 0.59 0.70 0.55 1.83 3.67 0.50 0.52 0.54 0.54 2.10 1

GAAP Operating Income (9.12) (12. 74) (16.72) (8.60) (3.12) (5.76) (7.03) (7.23) (23.13) (8.70) (15.29) (14.78) (5.80) (44.57) (9.07) (14.60) (14.91) (4.28) (42.87) (12

Interest income/(expense) (2.09) (2. 95) (3.60) (3.38) (0.95) (0.99) (1.03) (1.00) (3.97) (0.94) (0.87) (2.54) (0.50) (4.85) (0.50) (0.50) (0.50) (0.50) (2.00) (2

I nc ome be fo re i nc ome t ax es ( 11 .21 ) ( 15. 69) (2 0. 32) (1 1. 98) (4 .06 ) (6 .75 ) (8 .05 ) ( 8. 23 ) (2 7. 09) (9 .64 ) ( 16 .16 ) (17 .32 ) ( 6. 30 ) (4 9. 42) (9 .57 ) (15 .10 ) (1 5. 41) ( 4. 78) (4 4. 87) ( 14

Provision for income taxes 0.00 0.00 0.00 0.00 0.00 0.15 0.00 0.01 0.15 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1

Effective Tax Rate 0.0% 0.0% 0.0% -10.4% 0.0% -2.2% 0.0% -0.1% -0.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 10

Net income (11.21) (15.69) (20.32) (11.98) (4.06) (6.90) (8.05) (8.24) (27.25) (9.64) (16.16) (17.32) (6.30) (49.42) (9.57) (15.10) (15.41) (4.78) (44.87) (16

GAAP EPS (diluted) (0.11)$ (0.86)$ (0.17)$ (0.26)$ (0.26)$ (0.08)$ (0.77)$ (0$Diluted shares outstanding (in M) 57.72 57.72 57.92 58.12 58.32 58.52 58.22 5

Source: Company reports, ThomsonOne Analytics, and ThinkEquity LLC estimates.

Page


11/15

Yun Kim

212-468-7011

[email protected]

ANGI Paid Membership

FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

Total paid memberships (end of period) 152,110 234,879 333,489 411,727 602,882 1,057,400 1,586,078 2,115,867

q/q growth

y/y growth 23.5% 46.4% 75.4% 50.0% 33.4%


Page 1


12/15

Yun K212-468-701

[email protected]

ANGI Service Provider Metrics

FY06 FY07 FY08 FY09 1Q 2Q 3Q 4Q FY10 1Q 2Q 3Q

FY FY FY FY Mar-10 Jun-10 Sep-10 Dec-10 FY Mar-11 Jun-11 Sep-11

Participating service providers (end of period) 3,889 6,437 7,960 10,415 11,596 12,356 13,359 15,060 15,060 17,577 19,750 21,92q/q growth 11.3% 6.6% 8.1% 12.7% 16.7% 12.4% 11.0y/y growth 30.8% 34.9% 35.2% 37.7% 44.6% 44.6% 51.6% 59.8% 64.1

Service prov rev/# of service provs $2,252.39 $2,416.32 $621.08 $672.06 $673.63 $623.17 $2,250.33 $602.78 $659.14 $679.4q/q growth 8.2% 0.2% -7.5% -3.3% 9.4% 3.1y/y growth 7.3% -6.9% -2.9% -1.9% 0.9

Total service provider contract value (end of period, in K) $9,261 $15,268 $22,489 $30,849 $33,370 $34,641 $37,402 $43,050 $43,050 $50,303 $55,647 $65,10

q/q growth 8.2% 3.8% 8.0% 15.1% 16.8% 10.6% 17.0y/y growth 64.9% 47.3% 37.2% 34.5% 29.5% 29.6% 39.6% 39.6% 50.7% 60.6% 74.1Contract value/# service provider (in K) $2.38 $2.37 $2.83 $2.96 $2.88 $2.80 $2.80 $2.86 $2.86 $2.86 $2.82 $2.9

q/q growth -2.6% -0.1% 2.1% 0.1% -1.5% 5.4y/y growth -0.4% 19.1% 4.8% -3.5% -0.6% 0.5% 6.0

Service prov rev/paid members 44.59$ 52.36$ 53.76$ 61.12$ 16.29$ 16.72$ 16.11$ 15.57$ 56.21$ 15.71$ 15.84$ 15.0$q/q growth 2.6% -3.7% -3.4% 0.9% 0.8% -4.8y/y growth 17.4% 2.7% 13.7% -8.0% -3.6% -5.2% -6.4


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212-4ykim@thinkeq

Valuation Table for Internet Companies (excluding direct consumer e-Commerce)

Company Symbol 01/02/12

Market

Cap

($M)

Enterprise

Value (EV)

($M)

Cash per

Share

CY11E

Rev ($M)

CY12E

Rev ($M)

CY11

EV/S

CY12

EV/S

CY11E

EBITDA

CY12E

EBITDA

CY11

EV/

EBITDA

CY12

EV/

EBITDA

Y10-11

Revenue

Growth

Rate

Y11-12

Revenue

Growth

Rate

Y10-11

EBITDA

Growth

Rate

E

G

Ancestry.com ACOM $22.96 1,119 1,070 $1.00 399.4 460.4 2.7x 2.3x 144.2 163.0 7.4x 6.6x 33% 15% 43%

Angie's List ANGI $16.39 946 850 $1.66 87.9 141.5 9.7x 6.0x (39.2) (38.2) 49% 61%

Homeaway AWAY $23.00 1,823 1,650 $2.18 230.1 286.2 7.2x 5.8x 65.8 83.4 25.1x 19.8x 24%

Netflix NFLX $69.20 3,758 3,627 $2.41 3,186.6 3,627.5 1.1x 1.0x 441.9 150.6 8.2x 24.1x 47% 14% 38%

OpenTable OPEN $39.58 949 869 $3.33 139.2 168.6 6.2x 5.2x 52.6 69.7 16.5x 12.5x 41% 21% 51%

Quinstreet QNST $9.48 466 424 $0.84 398.6 405.7 1.1x 1.0x 81.9 99.2 5.2x 4.3x 5% 2% -3%

Zillow Z $23.04 621 525 $3.55 64.9 97.3 8.1x 5.4x 11.0 19.4 47.6x 27.0x 50%

AVERAGE 5.2x 3.8x 18.3x 15.7x 34.9% 26.8% 32.3%

AOL AOL $14.98 1,597 1,266 $3.11 2,197.5 2,108.3 0.6x 0.6x 356.8 319.0 3.5x 4.0x -9% -4% -50%

Bankrate RATE $20.48 2,048 2,177 ($1.29) 413.9 504.6 5.3x 4.3x 130.6 162.3 16.7x 13.4x 22%

Demand Media DMD $6.84 92 13 $5.86 317.3 369.0 0.0x 0.0x 84.2 106.2 0.2x 0.1x 16%

eHealth, Inc EHTH $14.26 340 214 $5.30 147.5 149.5 1.5x 1.4x 22.1 25.7 9.7x 8.3x -8% 1% -45%

Google GOOG $639.70 206,784 168,411 $118.71 29,316.4 36,027.2 5.7x 4.7x 16,060.4 19,290.3 10.5x 8.7x 33% 23% 22%

Knot/XO Group KNOT $8.51 286 202 $2.50 124.4 136.2 1.6x 1.5x 17.7 25.7 11.5x 7.9x 10% 9% 12%

Monster Worldwide inc MWW $7.69 927 828 $0.82 1,049.0 1,080.5 0.8x 0.8x 185.0 209.2 4.5x 4.0x 15% 3% 97%

Nutri System NTRI $12.86 369 327 $1.47 398.9 449.8 0.8x 0.7x 33.6 62.9 9.7x 5.2x -22% 13% -52%

ReachLocal RLOC $6.23 164 70 $3.58 374.9 454.8 0.2x 0.2x 13.8 22.8 5.1x 3.0x 29% 21% 2544%

Shutterfly (high touch) SFLY $22.90 670 601 $2.35 473.0 589.7 1.3x 1.0x 83.9 110.4 7.2x 5.4x 54% 25% 25%

United Online UNTD $5.39 515 696 ($2.07) 900.7 889.3 0.8x 0.8x 174.8 164.0 4.0x 4.2x -2% -1% -14%

ValueClick VCLK $16.58 1,365 1,411 ($0.56) 553.2 707.5 2.6x 2.0x 169.6 215.1 8.3x 6.6x 28% 28% 31%

Vistaprint (low touch) VPRT $31.29 1,407 1,245 $3.58 918.8 1,005.5 1.4x 1.2x 156.9 141.0 7.9x 8.8x 25% 9% 4%

WebMD Health Corp WBMD $37.31 2,126 1,824 $5.29 562.5 573.4 3.2x 3.2x 182.9 193.1 10.0x 9.4x 5% 2% 5%

Weight Watcher WTW $56.25 4,268 5,274 ($13.25) 1,829.9 1,961.5 2.9x 2.7x 582.8 657.7 9.0x 8.0x 26% 7%

Yahoo! YHOO $15.78 21,534 12,443 $1.45 4,407.3 4,603.4 2.8x 2.7x 1,642.9 1,735.9 7.6x 7.2x -4% 4% -1%

AVERAGE 3.0x 2.4x 11.5x 9.7x 18.7% 15.9% 17.8%

urce: Baseline, Factset and ThinkEquity LLC estimates

Page


14/15

COMPANIES MENTIONED IN THIS REPORT:Company Exchange Symbol Price Rating

eHealth, Inc. NASDAQ EHTH $14.70 Buy

OpenTable, Inc. NASDAQ OPEN $39.13 Buy

QuinStreet, Inc. NASDAQ QNST $9.36 Buy

ValueClick, Inc. NASDAQ VCLK $16.29 Buy

Zillow, Inc. NASDAQ Z $22.48 Buy

Important DisclosuresAnalyst CertificationI, Yun Kim, hereby certify that all of the views expressed in this research report accurately reflect my personal views about the subjesecurities and issuers. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specifrecommendations or views expressed in this research report.

The analyst(s) responsible for preparing this report has/have received compensation based on various factors, including the firm's totrevenues, a portion of which is generated by investment banking activities. The analyst(s) also receive compensation in the form ofpercentage of commissions from trades made through the firm in the securities of the subject company of this report, although not for a

investment banking transactions with or involving the subject company.

ThinkEquity LLC and/or an affiliate managed or co-managed a public offering of securities for Angie's List, Inc. and Zillow, Inc. in the pas12 months.ThinkEquity LLC makes a market in Angie's List, Inc., eHealth, Inc., OpenTable, Inc., QuinStreet, Inc., ValueClick, Inc. and Zillow, Inc.securities; and/or associated persons may sell to or buy from customers on a principal basis.

ThinkEquity LLC has made affirmative disclosures concerning each of the covered securities mentioned in this report, including analystholdings (if any), rating definitions and overall ratings distributions. These disclosures can be found in the most recent complete researchreport for each of the respective companies. Reports are available upon request.

Rating Definitions

Effective October 7, 2009, ThinkEquity LLC moved from a four-tier Buy/Accumulate/Source of Funds/Sell rating system to a three-tier Bu

Hold/Sell system. The new ratings appear in our Distribution of Ratings, Firmwide chart. To request historical information, including previoupublished reports or statistical information, please call: 866-288-8206, or write to: Director of Research, ThinkEquity LLC, 600 MontgomeStreet, San Francisco, California, 94111.

Buy: ThinkEquity expects the stock to generate positive risk-adjusted returns of more than 10% over the next 12 months. ThinkEqurecommends initiating or increasing exposure to the stock.

Hold: ThinkEquity expects the stock to generate risk-adjusted returns of +/-10% over the next 12 months. ThinkEquity believes the stois fairly valued.

Sell: ThinkEquity expects the stock to generate negative risk-adjusted returns of more than 10% during the next 12 months. ThinkEqurecommends decreasing exposure to the stock.

Distribution of Ratings, Firmwide

ThinkEquity LLC

IB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY [B] 110 65.10 15 13.64

HOLD [H] 47 27.80 2 4.26

SELL [S] 12 7.10 0 0.00This report does not purport to be a complete statement of all material facts related to any company, industry, or security mentioneThe information provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliabl

Page 14

January 3, 201



15/15

The opinions expressed reflect our judgment at this time and are subject to change without notice and may or may not be updated. Paperformance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implieis made regarding future performance. This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there bany sale of these securities in any state in which said offer, solicitation, or sale would be unlawful prior to registration or qualification undthe securities laws of any such state. This research report was originally prepared and distributed to institutional clients of ThinkEquity LL

Recipients who are not market professionals or institutional clients of ThinkEquity LLC should seek the advice of their personal financadvisors before making any investment decisions based on this report. Stocks mentioned in this report are not covered by ThinkEquity LLunless otherwise mentioned.

Additional information on the securities mentioned is available on request. In the event that this is a compendium report (covers more thasix ThinkEquity LLC-covered subject companies), ThinkEquity LLC may choose to provide specific disclosures for the subject companies reference. To request more information regarding these disclosures, please call: 866-288-8206, or write to: Director of Research, ThinkEquLLC, 600 Montgomery Street, San Francisco, California, 94111. Stocks mentioned in this report are not covered by ThinkEquity LLC unleotherwise mentioned.

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Copyright 2011 ThinkEquity LLC, A Panmure Gordon Company

January 3, 201


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Angies List Initiate