Angie's List Gets Little Love From Analysts

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Tom Taulli , InvestorPlace Writer

NEW YORK ( InvestorPlace) --When it comes to IPOs, there are several arcane rules. One is the "quiet period," which requires that a company's insiders and underwriters not make any forward-looking comments about its IPO. But once it expires at the end of 40 days from its offering, you'll typically see plenty of analyst recommendations.

While they typically glow, there are some exceptions. Just look at Groupon ( GRPN). In mid-December, when Groupon's quiet period expired , the company's analysts issued recommendations that ranged from neutral to sector perform to hold.
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  • This should have been a red flag for investors. Let's face it: Wall Street analysts don't like to cause too much rancor with big companies because it could mean losing future investment banking fees, such as for secondaries and acquisitions. In the case of Groupon, its stock fell 13% after the recommendations.

    This week, we got another case: Angie's List ( ANGI). On Tuesday, the quiet period expired and the analyst recommendations were lukewarm. For example, Bank of America gave Angie's List a neutral rating and RBC Capital placed a sector perform rating on the company. ANGI received only two buy ratings.
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  • Price targets were in a range of $17 to $19; ANGI started Tuesday at $16.40 but finished the day trading at just more than $15.

    Angie's List is a well-known destination for people to find contractors, and it boasts more than 1 million members. Unlike other providers, Angie's List actually has been able to get its customers to pay ongoing fees. And the company's growth rate has been strong, with revenue up 46% to $62.6 million for the first nine months of 2011.
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  • But there's a hitch: To achieve this growth, Angie's List has been spending aggressively on marketing (there's a good chance you've seen the company's ubiquitous commercials). Last year's marketing expenditures came to $48 million, up from $30.2 million in the same period a year ago.

    That's because Angie's List must compete against free offerings, including ServiceMagic, Yelp, Insider Pages and Kudzu. It also has pressure from Internet giants like Google ( GOOG), Groupon, Microsoft ( MSFT) and Yahoo! ( YHOO).

    Right now, analysts might think Angie's List is just too expensive. ANGI's valuation is fairly hefty, coming to about 9.5 times revenues -- a steep price to pay for a company that faces lots of competition and is relying on heavy marketing expenditures to fuel its growth.

    Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of All About Short Selling and All About Commodities. Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.

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  • This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.