Initial signs of the revamp under way at Angie's List showed up today when the company reported it swung to a $4.8 million net profit in the second quarter from an $8.3 million net loss in the year-earlier period despite a 4.8% drop in revenue to $83.1 million.
The Indianapolis-based firm did that in part by cutting its marketing expenses in half to $14.4 million, slicing its operations and support expenses by one-third to $10.2 million, and trimming selling expenses by one-seventh to $27 million. All those changes were intentional, reflecting the company's shift toward giving free access to all of its reviews and creating two new paid membership tiers.
Historically, Angie's List drew its revenues from memberships paid by individuals and money handed over by service providers such as remodelers for advertising, system access, and related promotions. Because its attractiveness to service providers was based largely on the size of its homeowner base, Angie's List has pushed hard over the years to expand, growing from 10 markets back in 2003 to 253 today. Free memberships represent the next growth target: Angie's List collected 152,586 of them in the quarter ended June 30, virtually all of them coming when the company dropped its paywalls in June.
On the other hand, the number of paid memberships added fell 39% in the quarter to 317,776. That cut membership revenue by for the quarter by 7% to $15.6 million. Meanwhile, service provider revenue slipped 4% to $67.4 million. Angie's List attributed the service provider drop to "an increase in service provider attrition, lower originations and lower e-commerce revenue, due in part to disruptions associated with the migration to the Company's new AL 4.0 technology platform."
As for the expenditure cuts, Angie's List gave "efficiency" as the reason several times but also noted that its 50% cut in marketing expenditures occurred "ahead of an expected acceleration in spend in the third quarter in connection with the removal of the ratings and reviews paywall."
Management declined to give earnings guidance for the future, but made clear that its future "now more than ever depends on the origination and renewal of longer term contracts with service providers." In addition, the company said it "recently began pursuing other new revenue initiatives to further monetize participating and especially non-participating service providers."