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Angie’s List Staring Down Facebook, Google In Home Spruce-Up Market

The provider of online home-improvement reviews, Angie’s List, is going up against some big guns. Angie’s List ( ANGI ), which made its IPO in 2011, lets people research, rate and hire local providers of home-improvement services. But with its original paywall for subscriptions prompting 90% of its traffic to flee from the site, Angie’s List this month announced the start of a fully free tier of service. Users have an option to upgrade to various paid tiers. The company’s announcement of its move to “freemium” came soon after social networking powerhouse Facebook ( FB ) released Facebook Professional Services, its own local business-listings and service-discovery program. Facebook says its offering can help users find anything from plumbers to pet services, plus get business ratings and reviews. That new entrant has heaped even more competition in the path of Indianapolis-based Angie’s List, whose rivals already include Amazon.com ( AMZN ), Alphabet ( GOOGL )-subsidiary Google and crowdsourced online-review site Yelp ( YELP ). Others vying for a piece of the action include privately-held websites Houzz, Porch and Thumbtack. This month, Angie’s List unveiled a new growth plan after it spurned a $512 million acquisition offer made in November by IAC/InterActiveCorp ( IAC ) subsidiary HomeAdvisor, another competitor in the estimated $400 billion home services market. Scott Durchslag became the second CEO for Angie’s List last September. The former Best Buy ( BB ) executive came aboard after company co-founder and Chief Executive Officer William Oesterle stepped down. IBD recently spoke with Durchslag about the company’s new effort to get business in the super-fragmented market for providers of online home-improvement services. IBD: How can Angie’s List go up against Facebook? Durchslag: Facebook or Google, they’ve both tried to do things in other spaces before. Services is a very different business than either Facebook or Google’s core businesses. You really need to have relationships with service providers and you need to be able to understand how to create and convey value to service providers. We’ve got 55,000 of them; they are a big part of our business. That is what Angie’s List has been doing for 20 years. We are actually in a pretty good position, I would say, to compete. I would be more concerned if I were somebody that was just in the “search and match” business alone, the way that some of our competitors are. Angie’s List has a very differentiated model because we have a membership model. I welcome the challenge, but I think in terms of the core value that we provide — especially the new strategy that we laid out in the “profitable growth plan” — (it) has us competing in each stage of the value chain, from search to match to hiring to payments to fulfillment. We’re going to be playing in all of those areas through our platform, really bringing together both existing and new service providers, existing and new consumers, and existing and new partners. Nobody else has an offering to match what we are trying to do. IBD: Can you give some examples of those partners? Durchslag: There are several different types. We segmented them to say we will have 10 or so exclusive partnerships with tight integration. We will probably have around 50 semi-exclusive and then will have hundreds that are open to integrate with us through the APIs (application programming interfaces) and the software developer kits that we put out. . . . A bank that would be able to do a refinance of a kitchen remodel project would be one type of privileged partnership that we could offer. Insurance companies — particularly homeowners insurance companies — would be another example. (They) would love to be able to access this massive, $400 billion, fragmented home-services market. And then in each category of building products, (partners) would have the chance to be able to get directly to high-end consumers or to our service providers. So imagine you’re a paint company or you sell shingles or you sell flooring. We have announced a partnership with Bluebook, which gives us thousands of price tasks in each locality where we can compete. (Bluebook International provides cost information on home improvement projects.) You can see a fair price curve and you’ll be able to see the bids you got on your project and how that compares against similar projects in your locality, so you have an idea of how good that price was. We’ll have other (services) like that. IBD : Your company rebuffed a buyout offer from HomeAdvisor, saying you could reap better results from a new business strategy. What is that new strategy? Durchslag: What I said was (any sale) was premature before we had a chance to come out with our “profitable growth plan” and make clear what the organic value of the company would be, in terms of: If we executed the turnaround plan, what would be the value of the business? So you need to have something to compare any kind of offer to, you can’t just look at an offer in a vacuum. We’re open to value-creation opportunities. But what we’re really focused on is executing the “profitable growth plan.” The way the strategy works in 2016 is all about strengthening the core. That’s where we are opening the paywall; we’re rolling out the new platform. We’re rolling out the new offers and getting our membership base transitioned from reviews as . . . the basis of payments into a whole broader set of things. And phase two (in) 2017 and 2018 is all about building that three-dimensional platform between consumers, service providers and partners. Only after we’ve done that do I think we’ve earned the right to go into adjacencies. Those will be looking at things like, potentially, international expansion. I don’t want to get any more specific than that. IBD: What makes you confident that the benefits of dropping the paywall can offset any revenue loss? Durchslag: There’s some momentum there to build upon; that will only accelerate dramatically once we take the paywall down, because I anticipate that traffic will explode. That will only drive more e-commerce and it will drive LeadFeed, which is our way of monetizing free users. So, when people come to us, they would have the chance to search, they would have the chance to hire through LeadFeed, they’d have the chance to shop through e-commerce. Those things all turn into revenue. There’s a lot we need to get done to execute the strategy. In the pilot markets we tested, we saw some very promising results. We saw registrations higher by three to four times in places where we had the reviews paywall. We saw people writing reviews three to four times more often. We saw contract value going up very significantly. We are working it from the consumer side first on what we are doing with the paywall. Then, we will (focus) on the service provider side, because you want to make sure when you get this avalanche of traffic and interest that you have enough service providers to service them, otherwise you overwhelm the service providers you’ve got and consumers don’t want to wait.

Microsoft Reportedly Among Those In Yahoo Acquisition Mix

The process of finding a buyer for struggling Web portal Yahoo ( YHOO ) is reportedly in the middle of its first round, and interest is high, according to a CNBC report , which cited sources close to the matter. This comes after a separate report said Microsoft ( MSFT ) might put up “significant” financing in a bid for Yahoo. Microsoft executives are in talks with potential investors about providing funds to buy the troubled Internet company , Re/Code reported. A Reuters report said those talks are in the early stages. Microsoft and Yahoo have a longstanding search and ad partnership, and Microsoft is focused on preserving that relationship, it said. Private equity firms interested in Yahoo have approached Microsoft, Reuters said. Microsoft declined to comment. Microsoft has been meeting with private-equity firms and saying it might lend “significant” financing in a bid for Yahoo, according to Re/Code . In 2008, then-Microsoft CEO Steve Ballmer tried to buy Yahoo for about $45 billion. Yahoo’s overall market cap is now $33 billion, but that includes its its major stakes in China e-com leader Alibaba Group ( BABA ) and in Yahoo Japan. Minus those holdings, analysts have pegged the price of Yahoo’s core business at $6 billion to $8 billion. Excluding its 15% stake in Alibaba, Rosenblatt analyst Martin Pyykkonen said in an industry note last week : “Yahoo’s current market cap implies $3.3 billion valuation for the core business and the Yahoo Japan stake. We think the fundamental outlook for Yahoo as a ‘growth’ stock is continuing to erode, especially in light of strong secular trends which are benefiting the likes of Facebook ( FB ) and Google owner Alphabet ( GOOGL ), both of which have more revenue concentration from mobile advertising.” Possible Yahoo Buyers Said To Include AT&T, Verizon Re/Code said that Yahoo started engaging with “strategic” bidders that include AT&T ( ATT ), Verizon ( VZ )and Comcast ( CMCSA ), with private equity and other investment firms to come next, the report’s sources said. Interested parties reportedly include Advent International, Vista Equity Partners, TPG and KKR ( KKR ). Verizon Chief Financial Officer Fran Shammo said in December that the U.S. wireless carrier could look at buying Yahoos’s core business if it were a good fit. Activist investor Starboard Value announced Thursday that it wants to sweep out all of the ailing Web company’s nine directors and replace them with its own slate during Yahoo’s 2016 shareholder meeting. This month, Yahoo appointed two members to its board: Catherine Friedman, a former managing director at Morgan Stanley ( MS ), and Eric Brandt, a former chief financial officer at Broadcom ( AVGO ). “This is gearing up to be an epic proxy fight, and we believe that this will create a significant overhang on Yahoo shares,” said Mizuho analyst Neil Doshi in an industry note on Thursday. “It’s unusual to see an investor try to replace an entire board, but this clearly highlights to us that Starboard does not trust any of the existing board members will do what needs to be done to create value for Yahoo shareholders.” Yahoo Chief Executive Marissa Mayer has struggled to turn the company around in her nearly four years as Yahoo’s leader. Yahoo stock was up 1%, near 35, in afternoon trading in the stock market today .

PayPal Still Bests Payments Frenemies Apple, Facebook, Google

Investors may have sold off PayPal ( PYPL ) too quickly last week, an analyst says, after new Apple ( AAPL ) Pay features called into question PayPal’s longtime dominance in payments. Mark Palmer of BTIG wrote in a research note Monday that Apple Pay has a relatively small reach — Apple’s iOS has a 14% global market share — and PayPal is no stranger to competition, successfully fending off offerings from Amazon.com ( AMZN ), Facebook ( FB ) and Alphabet ( GOOGL ) over the years. Reports surfaced Wednesday that Apple Pay will be included in the Safari browser in time for holiday shopping this year. Doing so will help solve the perennial problem with mobile commerce: Shoppers prefer to buy on desktops and browse on mobile devices. PayPal, an IBD Leaderboard stock, fell 5 cents to 38.87 in early afternoon trading on the stock market today . The stock temporarily dropped nearly 8% intraday from an alternate 40.03 buy point Thursday, but closed down about 4%. PayPal’s 38.62 entry still holds for now. It has an IBD Composite rating of 93, where 99 is the highest. Despite the fact that PayPal executives have told IBD on several occasions that Apple Pay growth will actually help the company’s prospects — many of the merchants using Apple Pay process the payment through PayPal subsidiary Braintree — Palmer says that such an argument is a “stretch.” That’s because PayPal earns less if Braintree processes an Apple Pay transaction vs. if the customer uses PayPal. “With that said, we do agree that Braintree could serve as something of a mitigate to the competitive challenge posed by Apple Pay,” Palmer wrote. But threats to PayPal are nothing new, and the company has been fending off competition since it first launched in the late 1990s. Alphabet’s Google Checkout made its debut in 2006, Palmer says, and Amazon Payments launched in 2007. Facebook has also launched Facebook Credits. None have unseated PayPal as payments king. “None of these offerings has diminished PayPal’s growth trajectory, as most recently demonstrated by its 29% foreign exchange-neutral increase in total payment volume during Q4, 2015,” Palmer wrote. Square Shift To Flexible Loans From Cash Advance Digital cash register maker and payments processor Square ( SQ ) said Thursday that it planned to transition its lending business, Square Capital, to flexible loans from its current cash-advance program. In a separate research note, Palmer questioned whether observers who suggested the company’s continued push into lending would drag its valuation down. Palmer, in the note, said that he didn’t believe that was the case because Square CEO Jack Dorsey — also top boss at Twitter ( TWTR ) — sees the lending business as part of a suite of products that add value to small businesses, not a stand-alone operation. To wit, in addition to the loans, Square offers marketing products and other financial services such as payroll that make small businesses (the bulk of Square’s customers) more efficient, Palmer wrote. Because of Square’s large base on merchants and the ease with which it can market loans, it can offer lenders extremely low acquisition costs, Palmer says. Its credit decisions based on the trove of transaction data have also produced a low default rate thus far. “As part of a cohesive bundle of services, SQ’s loan product should be regarded not as an anchor on its valuation but rather as a facilitator of increased growth, in our view,” Palmer wrote. “In the end, we see little reason Square Capital’s loan growth can’t approach the rates demonstrated by the company’s core payments business while enhancing its profitability.” Image provided by Shutterstock .