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January 3, 2012

Company Report
Initiation of Coverage

Angie's List, Inc.


Buy

ANGI: $16.10 Price Target: $22.00

Internet

ANGI: Initiating Coverage with a Buy Rating and $22 Price 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 the company is well positioned to benefit from the current positive trends around home service providers adopting online channels to acquire new customers and to grow their businesses. In our view, ANGI is currently at an inflection point in which its fast-growing recurring revenue base is large enough to begin to offset its high marketing costs, which should lead to accelerated margin expansion while improving its visibility. KEY POINTS: We believe ANGI's recurring revenue streams provide a high level of visibility into one of the fastest growing Internet companies in the industry. Its paid membership business, driven by annual subscriptions, and its service provider business, driven by annual advertising contracts, provide highly recurring revenue streams. Its membership business has a renewal rate in the mid-to-high 70s, and its advertising business with service providers has a renewal rate of approximately 70%. Hence, we estimate that renewals each quarter, which are not reflected in the deferred revenue balance in the prior quarter, should provide about 20% of revenue. About 35-40% of its deferred revenue balance get recognized the following quarter, which provide about half of the revenue. Hence, we conservatively estimate that about 70% of its quarterly revenue is recurring in nature. We note that most service providers typically increase their contract value when renewing (driven by both higher advertising spend and also by higher ad 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. We believe the company is currently at the inflection point, in which its past up-front investment in marketing spend to obtain new subscribers are generating steady, highly visible revenue streams from membership fees and also from advertising contracts from service providers. These revenue streams, which in our view are highly sustainable, are currently large enough and growing fast enough to offset the incremental investments the company needs to make to enter new markets and ramp-up newer markets. This should be evident in its quarterly EBITDA margin trend, which we believe will start to show y/y improvement beginning in the first quarter of FY12 after two years of declines.
Yun Kim 212-468-7011, ykim@thinkequity.com

Changes
Rating Price Target

Current
Buy $22.00

Previous
---

FY11E REV (M) FY12E REV (M) FY11E EPS FY12E EPS FY11E EBITDA FY12E EBITDA

$87.9E $141.5E ($0.86)E ($0.77)E ($39.20)E ($38.20)E

------$18.75 $10.77 57.7 $929.0 NA 5.3% 2.0% $1.66 NA NA NM Dec 2012E


28.5E 32.9E 38.1E 42.0E 141.5E 6.6x

52-Week High: 52-Week Low: Shares O/S-Diluted (M): Market Cap (M): Average Daily Volume: Short Interest: Debt/Total Cap: Net Cash Per Share: P/E (12-month forward): Est. Long-Term EPS Growth: P/E/G: Fiscal Year-End: REV (M) $ Mar Jun Sep Dec FY FY P/S EPS $ Mar Jun Sep Dec FY 2010A
13.0A 14.5A 15.5A 16.1A 59.0A 15.7x

2011E
17.6A 21.0A 24.0A 25.3E 87.9E 10.6x

2010A
NA NA NA NA NA

2011E
NA NA NA (0.11)E (0.86)E

2012E
(0.17)E (0.26)E (0.26)E (0.08)E (0.77)E NM

Initiate coverage with a Buy rating and $22 price target. Shares trade at an FY P/E NM NM enterprise value to sales multiple of 6x based on our CY12 estimates, vs. its peer 2010A 2011E EBITDA $ average of 4x. Given our belief that ANGI's business model provides one of the (2.68)A (7.74)A highest revenue visibility in the online media industry, we have high confidence Mar (5.08)A (14.19)A in our projected 61% revenue growth this year from our 49% revenue growth Jun (5.84)A (13.80)A Sep estimate in FY11. Because much of the current marketing spend is essentially (1.11)A (3.47)E Dec an investment in its future revenue streams, we believe we can obtain an intrinsic FY (15.05)A (39.20)E value of its current business by excluding much of the current marketing spend and obtaining a net present value of its business driven by highly recurring revenue 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 its future return on its planned marketing spend beyond FY13 and to its business model itself, we believe $1.2B valuation is fairly conservative. With a net cash position of ~$1.66 per share, we are assigning a price target of $22. Please see analyst certification (Reg. AC) and other important disclosures on pages 14-15 of this report.

2012E
(8.01)E (13.47)E (13.70)E (3.02)E (38.20)E

January 3, 2012

Company Report

INVESTMENT THESIS
Online home services/improvement referral business represents one of the fastest growth segments within the local online advertising opportunity. In our view, local online advertising represents the next logical and the next big growth opportunity for all online advertising providers. According to BIAs Kelsey Group, the local advertising market (both online and offline) in the U.S. is expected to be about $135.9B in 2011, with online spending representing about $23.3B (or 17.2%). The firm expects the online share of the local advertising spend to increase to 25.4% by 2015, representing a four-year CAGR of 13%. Our checks indicate that the home improvement and services segment is currently one of the largest and is likely to be one of the fastest growth segments within the local online advertising market, especially in the area of new customer acquisition. We believe ANGI, with its highly differentiated and proven advertising solutions, is well positioned 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 of revenue visibility that is simply unmatched in the online media space. Its two revenue streams, membership fees and advertising contracts, provide highly predictable and sustainable revenue streams. Its typical member subscription is a year-long membership, and the average advertising contract is about 14 months long. We believe the companys deferred revenue balance from membership fees and advertising revenue provide significant visibility into its revenue streams over a one year period. Almost 40% of its deferred revenue balance is expected to be recognized next quarter; about 30% of the balance is expected to be recognized two quarters later; about 20% of the balance is expected to be recognized three quarters out; and about 10% of the balance four quarters later. In addition, we expect these revenue streams are currently ramping up at an accelerated rate, and we expect revenue growth rate to increase to 49% in FY11 from 29% growth in FY10. We expect revenue growth rate in FY12 is to accelerate to 61%. We note that advertising revenue from its service provider business is the main driver of its margin leverage, and we expect its service provider business to grow faster than its 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 the inflection point, in which its past up-front investment in marketing spend to obtain new subscribers are generating steady, highly visible revenue streams from membership fees and also from advertising contracts from service providers. These revenue streams, which we believe are highly sustainable, are currently large enough and growing fast enough to offset the incremental investments the company needs to make to enter new markets and ramp-up newer markets. This should be evident in its EBITDA margin trend, which we expect to show y/y improvement beginning in FY12 after two years of declines. Immediate market opportunity to monetize on its relationship with home service providers. We believe ANGI has a unique opportunity to expand on its current relationship with home service providers. In our view, the company can provide many of the back-office functions such as schedule management and mobile payment solutions. We believe cross-selling and up-selling additional products and services to its large advertiser base of home service providers should provide incremental revenue growth opportunity with better margin leverage than if it were to pursue expansion into new vertical. Recognizable consumer brand. We believe ANGI has built a highly recognizable, trusted brand that consumers seek when hiring the right home service providers the first time. In our view, this name recognition is something that is rare in 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 our view, ANGI has developed a unique but highly effective way to control the quality of content on its review site. It charges members to have access to one of the largest database of highly sought-after reviews of local contractors and service providers. The high quality of these reviews, in turn, leads both new and existing subscribers to post their reviews that are similar in quality. There are no anonymous posts, which the company believes increases the integrity of the reviews. Also, we believe many subscribers feel the sense of belonging to a community and contribute reviews more often than other free-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 are many local review sites for various products and services, we believe ANGI has built a large database of proprietary

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January 3, 2012

Company Report

content in the local home services market that is simply unmatched in the marketplace. Also, due to the relatively high price of service on which many homeowners are seeking advice, many are willing to pay a high fee to hire the right service provider the first time. Hence, we believe ANGI offers a strong value proposition for many homeowners, and its large subscriber base (1M+) and its high renewal rate (in the high 70s) are validation of the service it provides to its subscribers. Once a homeowner becomes a paying subscriber to ANGI, we think it is highly unlikely that the homeowner is going to pay to belong to another similar review site. Also, having paid a subscription fee, we feel homeowners are likely to utilize ANGIs services more often, which, in turn, creates higher usage, gains more value, and generates more reviews. We also note that most memberships are automatically renewed. Its pay member renewal rate has been trending 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 generation vendors after mortgage, online education and auto insurance. With the success of ANGI and other players targeting the online opportunity in the home services and improvement market, we expect competition to intensify as new players enter the market. Specifically, we expect traditional lead generation vendors who have strong heritage in the mortgage and/or online education areas to aggressively pursue this market opportunity, much like they went after the auto insurance lead generation market over the past few years. While ANGIs subscription fee business is not likely be impacted from growing competition, its service provider business could be impacted as local contractors and home service providers are likely to have more options in regards to advertising and paying for referrals. We note that traditional lead generation vendors are more focused on delivering actual customer leads rather than providing advertising solutions, which some of ANGIs target service providers may find more attractive. Other consumer review sites and Google potentially entering this market. We believe Yelp!, Facebook, Google, and other established online media companies with a large user base to enter ANGIs target market directly or indirectly. Already Yelp! has expanded its review site to include home services categories. We also see Facebook and its large user base already providing indirect competition. For instance, a Facebook user can easily receive contractor and home service provider recommendation from his or her friends by simply posting a request on the wall. We also see Google continuing to ramp up on its lead generation services beyond mortgage. We note that it already announced its plans to get into the automotive lead generation space. Finally, Groupon and other daily deal vendors, with their large email subscriber base and their knowledge of local markets, could more aggressively pursue the home services market opportunity. We note that ANGIs The BigDeal offering, which is largely a Groupon-like, email-based discount promotions, has been a success for the company. Heavy up-front acquisition cost associated with new subscriber acquisition. In our view, at the core of ANGIs business model is the number of paying subscribers. The higher the number of paying subscribers, more revenue is generated from its membership business. Also, more service providers will likely want to advertise their services on ANGI, which leads to higher advertising revenue from its service provider business. Hence, the company invests heavily in growing its subscriber base, especially in a new city it recently entered or trying to ramp up an existing city to reach an inflection point in its subscriber base where the network effect could accelerate in attracting new subscribers. Since there is considerable lag before any revenue is generated from the up-front investments it makes to acquire subscribers, there is a high level of risk associated with these investments in the companys core business. In addition, the actual level of return-on-investment (ROI) and predictability of ROI in each city have to be consistent for this up-front investment to turn profitable after a certain period of time. An unexpected decline in ROI in any market or a slower than expected ramp could potentially 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 ANGIs subscriber acquisition costs have been trending lower in 2011 vs. 2010 levels. In our view, one of the key drivers of the companys margin expansion over the next several years is lower member acquisition cost. As the company utilizes more affiliates and other online forms of customer acquisitions methods, we believe it may eventually encounter higher rates as the competition for these highly sought-after users intensifies with more players entering ANGIs core market. One item to note is that the network effect (or word of mouth) associated with its members can drive the overall acquisition costs down considerably, and we expect the network effect to increase as ANGI continues to grow its subscriber base.

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January 3, 2012

Company Report

Acquisition risks. The company may decide to pursue new verticals beyond its core home services market. It has already expanded into the health and wellness sector and also antique cars. We believe the company is likely to acquire existing entities to acquire vertical expertise rather than to expand organically. As with any acquisition, there will likely be a significant 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 the heart of ANGIs model are the members who generate high quality reviews of home service providers. When a company enters a new market, it initially focuses mainly on building a large member base to start generating reviews, which in return attracts new members. After enough members have signed up and a large number of reviews have been generated, the company starts to solicit advertising opportunities targeted at its members to local home service providers, many of whom have received favorable reviews. We believe the key to having a successful presence in each local market is simply having a high volume of high quality reviews, which is mainly driven by the number of members in that market. Hence, the company spends aggressively to attract new members to reach the critical mass of members for that market, which serves to not only protect its market share from other players,but also significantly reduces marketing costs as the network effect begin to drive a higher mix of new member sign-ups. The inflection point in profitability for each market is reached when the advertising revenue from home service providers begin to accelerate and offset the cost of marketing associated 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 into 35 markets between 2003-2007, mainly in large metropolitan areas, and 103 markets between 2008-2010. We note that because of the national advertising campaigns the company heavily relies on, its market penetration rate in the smaller markets tends to be higher and faster than that of larger markets, which require additional advertising outlets to reach the target 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-year. Typical one year membership for the core home service reviews ranges from $29 to $39, depending on the 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 its total paid members, although about 25% of its new subscribers initially start on monthly plan. As of September 30, 2011, about 87% of its total members were on either annual or multi-year subscription. Its renewal rate for annual and multi-year subscribers has been trending upwards in recent years, indicating to us increasing value of the service provided by ANGI as its member base continues to increase. Its average membership renewal rate has increased from 70% in FY08 to 73% in FY09 to 75% in FY10 and to 70% in the first three quarters of FY11. We note that renewal rate for first-year members is slightly lower. Subscription revenue is recognized ratably. The portion of subscription fees that is not recognized is reflected in the deferred membership revenue balance. About 40% of the balance is revenue that is scheduled to be recognized the following quarter, 30% in two quarters, 20% in three quarters and 10% in four quarters. The company spends a significant amount in marketing to attract new subscribers. It has historically spent more on marketing than the revenue generated from paid memberships, and we are projecting this trend to continue in the near-term (at least until FY13). About 65-70% of its marketing is spent on TV ads, and about 10% is spent on radio. Online marketing and advertising channels, including use of affiliates, currently 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 providers. Service providers can advertise to ANGIs members through the website, email promotions, monthly magazine and call centers. We note that ANGIs members grade each local service provider on an A to F scale. Only those service providers with an average grade of at least B is permitted to advertise on ANGI. As of September 30, 2011, about 815K service providers were reviewed, and about 210K of them (or 26%) had earned at least an average grade of B. Of these service providers that were eligible to advertise

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January 3, 2012

Company Report

on ANGI, about 10% of them were active advertisers. The average advertising contract length is about 14 months, and the revenue is recognized ratably. The portion of the contract that is not recognized but is invoiced is reflected in its deferred advertising revenue balance. About 35% of the contract value in backlog is revenue that is scheduled to be recognized the following quarter, 30% in two quarters, 20% in three quarters, 10% in four quarters and 5% in five quarters. We note that the company plans to provide total 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 about 60%, while the commission rate on renewals is about 10%. The company estimates that about 60% of its service providers renew their advertising contract after the first year, while 80% renew their contracts after 4 years. We note that this renewal rate does not account for the high failure rate of small businesses, especially in the local home service sector. As the member base of a particular market increases, ANGI typically charges higher advertising rates.

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

Exhibit 1:

Source: Company reports and ThinkEquity LLC estimates.

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January 3, 2012

Company Report

Simply put, in our view, the companys growth is driven by growth in its members. More members generate a higher number of quality reviews, which in turn attracts more pay members. More members also attract service providers who want to advertise to these highly sought-after potential customers, and advertising rates increase as more members are added to each local market. The company has shown a 41% CAGR in its total pay membership from FY06 to FY10. With higher marketing spend over the past two years, we expect its total pay memberships to accelerate. We are expecting a 52% 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 our view, and they also represent visibility into its business. We note that both contract value and service provider growth have been accelerating over the past two years, and we expect this trend to continue as membership growth has also been accelerating.

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January 3, 2012

Company Report

Exhibit 3:
Angies List, Inc. Market Cohort Analysis As of December 31, 2010
# of Markets Avg. Revenue/ Market(1) Membership Revenue/ Paid Membership(2) Service Provider Revenue/ Paid Membership(3) Avg. Marketing Expense/ Market(4) Estimated Total Paid Penetration Memberships(5) Rate(6) Annual Membership Growth Rate(7)

Cohort

Pre-2003 2003-2007 2008-2010 Total

10 35 103 148

$2,485,386 $909,451 $21,588

$60.16 $53.26 $17.46

$103.55 $62.91 $9.82

$496,819 $510,450 $71,874

168,947 324,531 109,404 602,882

4.1% 2.2% 1.8%

25% 45% 104%

(1) Average revenue per market is calculated by dividing the revenue recognized for the markets in a given cohort by the number of markets in the cohort at year end. (2) Membership revenue per paid membership is calculated as our membership revenue in the cohort divided by the average number of paid memberships in the cohort. We calculate this average per market to facilitate comparisons among cohorts, but it is not intended to represent typical characteristics of actual markets within the cohort. (3) Service provider revenue per paid membership is calculated as service provider revenue in the cohort divided by the average number of paid memberships in the cohort. (4) Average marketing expense per market is calculated first by allocating marketing expense to each cohort based on the percentage of our total target demographic for all markets in such cohort, as determined by third-party data, and then dividing the allocated cohort marketing expense by the numbers of markets in the cohort at year end. We calculate this average per market to facilitate comparisons among cohorts, but it is not intended to represent typical characteristics of actual markets within the cohort. According to a March 2011 demographic study by LogicLab LLC that we commissioned, there were approximately 29 million households in the United States in our target demographic, which consists of homeowners aged 35 to 64 with an annual household income of at least $75,000. Approximately 25 million of these households were in our markets. The average number of households per market in our demographic target was 413,000, 424,000 and 60,000 for the pre-2003, 2003-2007 and 2008-2010 cohorts, respectively. (5) Includes total paid memberships as of December 31, 2010. Total paid memberships in each cohort includes a de minimis number of complimentary memberships in our paid markets for the period presented. All revenue and paid memberships relating to locations that were not identified as part of a specific market are included in the 2008-2010 cohort. (6) Estimated penetration rate is calculated by dividing the number of paid memberships in a given cohort as of December 31, 2010 by the number of households meeting our target demographic criteria in such cohort. (7) Annual membership growth rate is the rate of increase in the total number of paid memberships in the cohort between December 31, 2009 and December 31, 2010. Source: Company reports The chart above illustrates the dynamics and the progress the company has made in the local markets it has entered over the years. Local markets are grouped into three categories depending on when the company initially entered the market. Pre-2003 cohorts are the companys 10 most established markets and represent eight mid-sized suburban markets primarily in the Midwest, along with Chicago and Boston. On average, these markets are profitable for the company, and the average marketing spend is about 20% of revenue vs. our estimate of 63% overall in FY11. We note that the company has better penetration rates in smaller markets vs. larger ones, and, accordingly, it spends less on marketing costs in smaller markets as a percentage of total revenue vs. larger markets. The 2003 through 2007 cohort represents the majority of all the metropolitan markets in the U.S., including the NY/NJ/CT tri-state area, San Francisco and Los Angeles. On average, these markets are not yet profitable and represent a significant portion of its current marketing spend. The 2008-2010 cohort represents primarily smaller markets to complete the companys overall national presence. The data shows that all revenue metrics per market generally increase with increasing penetration rates and the number of years the company has been active in that market. Newer markets typically command lower advertising rates due to a lower subscriber base and a lower market penetration rate, and this is reflected in the service provider revenue/paid membership metric. Also, the company employs lower pricing points and special promotions to build out the member base in new markets, which is reflected in a lower membership revenue/paid membership metric.

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January 3, 2012

Company Report

VALUATION
We initiate with a Buy rating and $22 price target. Shares recently traded at 6x our CY12 revenue estimate. We are th estimating that the current diluted share count, after the initial public offering on November 17 , 2011, currently stands at about 57.7M shares. Since the company is not currently profitable, nor do we expect it to be until FY14 at the earliest, we believe it is difficult to value the company on an earnings or EBITDA basis based on projected profitability several years out. However, given the high revenue visibility provided by its business model and the fact that much of the current marketing spend can be classified as investment in its future business, we believe one can obtain an intrinsic value of its current business by excluding the current marketing spend level. If we exclude our FY13 marketing spend estimate of $91M from our negative EBITDA estimate of ($7.4M), we obtain positive EBITDA value of $83.4M. We note that this profitability level represents the return on investment (ROI) it already made in prior years and represents the overall profitability of its mature markets. In our view, this EBITDA should continue to increase every year as its mature markets continue to grow its subscriber base largely through the network effect and minimal marketing spend. If we assign a conservative 5% perpetual annual growth rate to this profitability level, we obtain a 14x multiple on this profitability by assuming 2% current risk-free rate of return and 4.5% historical risk-free rate of return. Applying a 14x multiple on $83.4M EBITDA yields an intrinsic value of $1.2B (or $20.50/share), which we believe represents a conservative value of the investments the company has already made in its business. We estimate that the company currently has a net cash position of about $95M or $1.66 per share. We highlight that our $1.2B valuation does not include the ROI on the marketing spend the company plans to make in FY13 and beyond, and it does not assign any value on the business model itself. $1.2B valuation simply reflects the expected ROI in investments the company has made in its marketing spend 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) a drop in renewal rate of its members and advertisers from current levels; 4) increasing seasonality in its business; 5) acquisition risks; 6) inability to manage its margin expansion; 7) current U.S. economic conditions; 8) any meaningful delays in penetration rates of a strategically significant market; 9) inability to attract new advertisers; 10) pricing pressure on 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, and review local professionals for home, health care, and automotive service needs in the United States. The company focuses on delivering to its members trusted ratings and reviews of local service providers; providing the opportunity for highly-rated service providers to offer their members discounts and other promotions on local services; and advocating for its members to resolve their complaints with local service providers. The company currently has more than one million th paid memberships in 175 local markets in the U.S. The company went public on November 17 , 2011. Angies List, Inc. was founded in 1995 and is headquartered in Indianapolis, Indiana.

Page 8

Yun Kim 212-468-7011 ykim@thinkequity.com

ANGI Earnings Model


$ million, except EPS Fiscal year ending Dec 31 FY06 Business Segments Membership
q/q change y/y change FY

FY07
FY

FY08
FY

FY09
FY

1Q
Mar-10

2Q
Jun-10

3Q
Sep-10

4Q
Dec-10

FY10
FY

1Q
Mar-11

2Q
Jun-11

3Q
Sep-11

4QE
Dec-11

FY11E
FY

1QE
Mar-12

2QE
Jun-12

3QE
Sep-12

4QE
Dec-12

FY12E
FY

FY13E
FY

6.44

10.80
67.8%

15.94
47.5%

20.43
28.2%

5.79

6.18
6.6%

6.46
4.6%

6.72
4.1%

25.15
23.1%

7.03
4.6% 21.4%

7.94
12.9% 28.6%

9.10
14.6% 40.9%

9.22
1.3% 37.1%

33.29
32.4%

9.72
5.5% 38.2%

10.81
11.2% 36.1%

12.49
15.6% 37.3%

13.50
8.1% 46.5%

46.53
39.8%

64.94
39.6%

Service provider
q/q change y/y change -

6.78

12.30
81.3%

17.93
45.8%

25.17
40.4%

7.20

8.30
15.3%

9.00
8.4%

9.39
4.3%

33.89
34.7%

10.60
12.9% 47.1%

13.02
22.9% 56.8%

14.90
14.4% 65.6%

16.07
7.9% 71.2%

54.58
61.1%

18.79
17.0% 77.4%

22.07
17.5% 69.5%

25.65
16.2% 72.1%

28.46
11.0% 77.1%

94.97
74.0%

143.87
51.5%

Total Revenue
y/y change -

13.22

23.10
75%

33.86
47%

45.60
35% -

12.99
-

14.48
-

15.46
-

16.11

59.04
29%

17.63
36%

20.96
45%

24.00
55%

25.29
57%

87.87
49%

28.51
62%

32.88
57%

38.14
59%

41.96
66%

141.49
61%

208.81
48%

Operating Expenses (excl. ESO costs) Operations and support


% of Revenue % of Membershp revenue

6.33
47.9% 98.4%

8.93
38.7% 82.7%

12.16
35.9% 76.3%

11.65
25.6% 57.0%

2.83
21.7% 48.8%

3.06
21.1% 49.5%

3.39
21.9% 52.4%

3.19
19.8% 47.5%

12.46
21.1% 49.6%

3.40
19.3% 48.3%

4.20
20.0% 52.9%

4.70
19.6% 51.6%

5.24
20.7% 56.8%

17.53
20.0% 52.7%

5.40
18.9% 55.6%

6.16
18.7% 57.0%

6.95
18.2% 55.6%

7.30
17.4% 54.0%

25.81
18.2% 55.5%

35.72
17.1% 55.0%

Selling
% of Revenue % of Service provider revenue

4.39
33.2% 64.6%

8.55
37.0% 69.5%

10.10
29.8% 56.3%

12.67
27.8% 50.3%

3.60
27.7% 50.0%

4.06
28.1% 48.9%

4.47
28.9% 49.7%

4.76
29.6% 50.7%

16.89
28.6% 49.8%

6.08
34.5% 57.4%

7.57
36.1% 58.2%

8.74
36.4% 58.6%

8.82
34.9% 54.9%

31.21
35.5% 57.2%

9.18
32.2% 48.8%

10.15
30.9% 46.0%

11.29
29.6% 44.0%

11.78
28.1% 41.4%

42.40
30.0% 44.6%

56.65
27.1% 39.4%

Marketing
% of Revenue % of Membershp revenue

6.76
51.1% 105.1%

8.84
38.3% 81.9%

14.94
44.1% 93.8%

16.11
35.3% 78.9%

6.04
46.5% 104.2%

9.43
65.1% 152.7%

9.67
62.5% 149.7%

5.11
31.7% 75.9%

30.24
51.2% 120.2%

11.10
63.0% 157.8%

18.13
86.5% 228.4%

18.76
78.2% 206.1%

7.76
30.7% 84.2%

55.75
63.4% 167.5%

14.45
50.7% 148.7%

22.25
67.7% 205.8%

25.68
67.3% 205.5%

17.62
42.0% 130.5%

80.00
56.5% 171.9%

90.75
43.5% 139.7%

Technology
% of Revenue

1.48
11.2%

2.38
10.3%

4.61
13.6%

5.06
11.1%

1.32
10.2%

1.37
9.5%

1.51
9.7%

1.58
9.8%

5.77
9.8%

1.61
9.1%

1.82
8.7%

2.22
9.2%

2.66
10.5%

8.31
9.5%

2.31
8.1%

2.41
7.3%

2.53
6.6%

2.74
6.5%

10.00
7.1%

11.70
5.6%

General and administrative


% of Revenue

3.38
25.6%

7.09
30.7%

8.70
25.7%

8.62
18.9%

2.23
17.2%

2.32
16.0%

2.61
16.9%

2.95
18.3%

10.10
17.1%

3.55
20.1%

3.82
18.2%

3.82
15.9%

4.78
18.9%

15.97
18.2%

5.74
20.1%

5.99
18.2%

6.07
15.9%

6.26
14.9%

24.06
17.0%

25.76
12.3%

Total operating expenses Non-GAAP operating Income


Operating Margin (%)

22.33 (9.12)
-69.0%

35.79 (12.69)
-54.9%

50.51 (16.65)
-49.2%

54.12 (8.52)
-18.7%

16.02 (3.02)
-23.3%

20.24 (5.76)
-39.8%

21.63 (6.18)
-40.0%

17.58 (1.47)
-9.1%

75.47 (16.43)
-27.8%

25.74 (8.11)
-46.0%

35.54 (14.59)
-69.6%

38.23 (14.23)
-59.3%

29.26 (3.98)
-15.7%

128.77 (40.90)
-46.5%

37.08 (8.57)
-30.0%

46.97 (14.08)
-42.8%

52.51 (14.37)
-37.7%

45.70 (3.75)
-8.9%

182.26 (40.77)
-28.8%

220.57 (11.76)
-5.6%

Depreciation and amortization Adjusted EBITDA


Adjusted EBITDA Margin (%)

-9.12
-69.0%

? (12.69)
-54.9%

1.77 (14.88)
-43.9%

1.52 (7.01)
-15.4%

0.34 (2.68)
-20.7%

0.68 (5.08)
-35.1%

0.34 (5.84)
-37.8%

0.36 (1.11)
-6.9%

1.38 (15.05)
-25.5%

0.37 (7.74)
-43.9%

0.40 (14.19)
-67.7%

0.43 (13.80)
-57.5%

0.51 (3.47)
-13.7%

1.70 (39.20)
-44.6%

0.56 (8.01)
-28.1%

0.61 (13.47)
-41.0%

0.67 (13.70)
-35.9%

0.73 (3.02)
-7.2%

2.57 (38.20)
-27.0%

4.41 (7.36)
-3.5%

Interest income/(expense) Income before income taxes Provision for income taxes
Effective Tax Rate

(2.09) (11.21) 0.00


0.0%

(2.95) (15.64) 0.00


0.0%

(3.60) (20.24) 0.00


0.0%

(3.38) (11.91) 0.00


-10.9%

(0.95) (3.97) 0.00 (3.97)

(0.99) (6.75) 0.15 (6.90)

(1.03) (7.20) 0.00 (7.20)

(1.00) (2.47) 0.01 (2.48)

(3.97) (20.39) 0.15 (20.55)

(0.94) (9.04) 0.00 (9.04)

(0.87) (15.46) 0.00 (15.46)

(2.54) (16.77) 0.00 (16.77) $

(0.50) (4.48) 0.00 (4.48) (0.08) $ 57.72

(4.85) (45.75) 0.00 (45.75) (0.79) 57.72 $

(0.50) (9.07) 0.00 (9.07) (0.16) $ 57.92

(0.50) (14.58) 0.00 (14.58) (0.25) $ 58.12

(0.50) (14.87) 0.00 (14.87) (0.26) $ 58.32

(0.50) (4.25) 0.00 (4.25) (0.07) $ 58.52

(2.00) (42.77) 0.00 (42.77) (0.73) 58.22 $

(2.00) (13.76) 1.64


11.9%

Non-GAAP net income Non-GAAP EPS (diluted) Diluted shares outstanding (in M)

(11.21)

(15.64)

(20.24)

(11.91)

(15.40) (0.26) 59.02

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

Page 9

Yun Kim 212-468-7011 ykim@thinkequity.com

ANGI Earnings Model


$ million, except EPS Fiscal year ending Dec 31 FY06 FY07
FY

FY08
FY

FY09
FY

1Q
Mar-10

2Q
Jun-10

3Q
Sep-10

4Q
Dec-10

FY10
FY

1Q
Mar-11

2Q
Jun-11

3Q
Sep-11

4QE
Dec-11

FY11E
FY

1QE
Mar-12

2QE
Jun-12

3QE
Sep-12

4QE
Dec-12

FY12E
FY

FY13E
FY

GAAP Reconcilliaton
Non-GAAP Operating Income Stock-based compensation GAAP Operating Income Interest income/(expense) Income before income taxes Provision for income taxes
Effective Tax Rate

FY

(9.12) 0.00 (9.12) (2.09) (11.21) 0.00


0.0%

(12.69) 0.06 (12.74) (2.95) (15.69) 0.00


0.0%

(16.65) 0.08 (16.72) (3.60) (20.32) 0.00


0.0%

(8.52) 0.08 (8.60) (3.38) (11.98) 0.00


-10.4%

(3.02) 0.09 (3.12) (0.95) (4.06) 0.00


0.0%

(5.76) 0.00 (5.76) (0.99) (6.75) 0.15


-2.2%

(6.18) 0.85 (7.03) (1.03) (8.05) 0.00


0.0%

(1.47) 5.76 (7.23) (1.00) (8.23) 0.01


-0.1%

(16.43) 6.70 (23.13) (3.97) (27.09) 0.15


-0.6%

(8.11) 0.59 (8.70) (0.94) (9.64) 0.00


0.0%

(14.59) 0.70 (15.29) (0.87) (16.16) 0.00


0.0%

(14.23) 0.55 (14.78) (2.54) (17.32) 0.00


0.0%

(3.98) 1.83 (5.80) (0.50) (6.30) 0.00


0.0%

(40.90) 3.67 (44.57) (4.85) (49.42) 0.00


0.0%

(8.57) 0.50 (9.07) (0.50) (9.57) 0.00


0.0%

(14.08) 0.52 (14.60) (0.50) (15.10) 0.00


0.0%

(14.37) 0.54 (14.91) (0.50) (15.41) 0.00


0.0%

(3.75) 0.54 (4.28) (0.50) (4.78) 0.00


0.0%

(40.77) 2.10 (42.87) (2.00) (44.87) 0.00


0.0%

(11.76) 1.14 (12.90) (2.00) (14.90) 1.49


10.0%

Net income GAAP EPS (diluted) Diluted shares outstanding (in M)

(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) (0.11) $ 57.72

(49.42) (0.86) 57.72 $

(9.57) (0.17) $ 57.92

(15.10) (0.26) $ 58.12

(15.41) (0.26) $ 58.32

(4.78) (0.08) $ 58.52

(44.87) (0.77) 58.22 $

(16.39) (0.28) 59.02

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

Page 10

Yun Kim 212-468-7011 ykim@thinkequity.com

ANGI Paid Membership


FY06 Total paid memberships (end of period) q/q growth y/y growth 152,110 FY07 234,879 FY08
333,489

FY09
411,727

FY10
602,882

FY11E
1,057,400

FY12E
1,586,078

FY13E
2,115,867

23.5%

46.4%

75.4%

50.0%

33.4%

Source: Company reports and ThinkEquity LLC estimates.

Page 11

Yun Kim 212-468-7011 ykim@thinkequity.com

ANGI Service Provider Metrics


FY06
FY

FY07
FY

FY08
FY

FY09
FY

1Q
Mar-10

2Q
Jun-10

3Q
Sep-10

4Q
Dec-10

FY10
FY

1Q
Mar-11

2Q
Jun-11

3Q
Sep-11

Participating service providers (end of period) q/q growth y/y growth Service prov rev/# of service provs q/q growth y/y growth Total service provider contract value (end of period, in K) q/q growth y/y growth Contract value/# service provider (in K) q/q growth y/y growth Service prov rev/paid members q/q growth y/y growth

3,889

6,437

7,960

10,415 30.8% $2,416.32 7.3% $30,849 37.2% $2.96 4.8% 61.12 13.7%

$2,252.39

11,596 11.3% 34.9% $621.08

12,356 6.6% 35.2% $672.06 8.2% $34,641 3.8% 29.5% $2.80 -2.6% $ 16.72 $ 2.6%

13,359 8.1% 37.7% $673.63 0.2% $37,402 8.0% 29.6% $2.80 -0.1% 16.11 $ -3.7%

15,060 12.7% 44.6% $623.17 -7.5% $43,050 15.1% 39.6% $2.86 2.1%

15,060 44.6% $2,250.33 -6.9% $43,050 39.6% $2.86 -3.5% 56.21 -8.0%

$9,261

$15,268 64.9% $2.37 -0.4% 52.36 17.4%

$22,489 47.3% $2.83 19.1% 53.76 2.7%

$2.38

$33,370 8.2% 34.5% $2.88

44.59

16.29

15.57 $ -3.4%

17,577 19,750 21,927 16.7% 12.4% 11.0% 51.6% 59.8% 64.1% $602.78 $659.14 $679.48 -3.3% 9.4% 3.1% -2.9% -1.9% 0.9% $50,303 $55,647 $65,104 16.8% 10.6% 17.0% 50.7% 60.6% 74.1% $2.86 $2.82 $2.97 0.1% -1.5% 5.4% -0.6% 0.5% 6.0% $ 15.71 $ 15.84 $ 15.08 0.9% 0.8% -4.8% -3.6% -5.2% -6.4%

Source: Company reports and ThinkEquity LLC estimates.

Page 12

Yun Kim 212-468-7011 ykim@thinkequity.com

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


Market Cap ($M) 1,119 946 1,823 3,758 949 466 621 Enterprise Value (EV) Cash per ($M) Share 1,070 850 1,650 3,627 869 424 525 $1.00 $1.66 $2.18 $2.41 $3.33 $0.84 $3.55 CY11E Rev ($M) 399.4 87.9 230.1 3,186.6 139.2 398.6 64.9 CY12E Rev ($M) 460.4 141.5 286.2 3,627.5 168.6 405.7 97.3 AVERAGE CY11 EV/S 2.7x 9.7x 7.2x 1.1x 6.2x 1.1x 8.1x 5.2x CY12 EV/S 2.3x 6.0x 5.8x 1.0x 5.2x 1.0x 5.4x 3.8x CY11E EBITDA 144.2 (39.2) 65.8 441.9 52.6 81.9 11.0 CY12E EBITDA 163.0 (38.2) 83.4 150.6 69.7 99.2 19.4 25.1x 8.2x 16.5x 5.2x 47.6x 18.3x 19.8x 24.1x 12.5x 4.3x 27.0x 15.7x 34.9% 47% 41% 5% CY11 EV/ EBITDA 7.4x CY12 EV/ EBITDA 6.6x Y10-11 Revenue Growth Rate 33% 49% Y11-12 Revenue Growth Rate 15% 61% 24% 14% 21% 2% 50% 26.8% 32.3% 38% 51% -3% 27% -66% 33% 21% 76% 17.3% Y10-11 EBITDA Growth Rate 43% Y11-12 EBITDA Growth Rate 13%

Company Ancestry.com Angie's List Homeaway Netflix OpenTable Quinstreet Zillow

Symbol ACOM ANGI AWAY NFLX OPEN QNST Z

01/02/12 $22.96 $16.39 $23.00 $69.20 $39.58 $9.48 $23.04

AOL Bankrate Demand Media eHealth, Inc Google Knot/XO Group Monster Worldwide inc Nutri System ReachLocal Shutterfly (high touch) United Online ValueClick Vistaprint (low touch) WebMD Health Corp Weight Watcher Yahoo!

AOL RATE DMD EHTH GOOG KNOT MWW NTRI RLOC SFLY UNTD VCLK VPRT WBMD WTW YHOO

$14.98 $20.48 $6.84 $14.26 $639.70 $8.51 $7.69 $12.86 $6.23 $22.90 $5.39 $16.58 $31.29 $37.31 $56.25 $15.78

1,597 2,048 92 340 206,784 286 927 369 164 670 515 1,365 1,407 2,126 4,268 21,534

1,266 2,177 13 214 202 828 327 70 601 696 1,411 1,245 1,824 12,443

$3.11 ($1.29) $5.86 $5.30 $2.50 $0.82 $1.47 $3.58 $2.35 ($2.07) ($0.56) $3.58 $5.29 $1.45

2,197.5 413.9 317.3 147.5 29,316.4 124.4 1,049.0 398.9 374.9 473.0 900.7 553.2 918.8 562.5 1,829.9 4,407.3

2,108.3 504.6 369.0 149.5 36,027.2 136.2 1,080.5 449.8 454.8 589.7 889.3 707.5 1,005.5 573.4 1,961.5 4,603.4 AVERAGE

0.6x 5.3x 0.0x 1.5x 5.7x 1.6x 0.8x 0.8x 0.2x 1.3x 0.8x 2.6x 1.4x 3.2x 2.9x 2.8x 3.0x

0.6x 4.3x 0.0x 1.4x 4.7x 1.5x 0.8x 0.7x 0.2x 1.0x 0.8x 2.0x 1.2x 3.2x 2.7x 2.7x 2.4x

356.8 130.6 84.2 22.1 16,060.4 17.7 185.0 33.6 13.8 83.9 174.8 169.6 156.9 182.9 582.8 1,642.9

319.0 162.3 106.2 25.7 19,290.3 25.7 209.2 62.9 22.8 110.4 164.0 215.1 141.0 193.1 657.7 1,735.9

3.5x 16.7x 0.2x 9.7x 10.5x 11.5x 4.5x 9.7x 5.1x 7.2x 4.0x 8.3x 7.9x 10.0x 9.0x 7.6x 11.5x

4.0x 13.4x 0.1x 8.3x 8.7x 7.9x 4.0x 5.2x 3.0x 5.4x 4.2x 6.6x 8.8x 9.4x 8.0x 7.2x 9.7x

-9%

-4% 22% 16%

-50%

-11% 24% 26%

-8% 33% 10% 15% -22% 29% 54% -2% 28% 25% 5% 26% -4% 18.7%

1% 23% 9% 3% 13% 21% 25% -1% 28% 9% 2% 7% 4% 15.9%

-45% 22% 12% 97% -52% 2544% 25% -14% 31% 4% 5% -1% 17.8%

16% 20% 46% 13% 87% 66% 32% -6% 27% -10% 6% 13% 6% 18.7%

168,411 $118.71

5,274 ($13.25)

Source: Baseline, Factset and ThinkEquity LLC estimates

Page 13

January 3, 2012

Company Report
Initiation of Coverage
COMPANIES MENTIONED IN THIS REPORT:
Company eHealth, Inc. OpenTable, Inc. QuinStreet, Inc. ValueClick, Inc. Zillow, Inc. Exchange NASDAQ NASDAQ NASDAQ NASDAQ NASDAQ Symbol EHTH OPEN QNST VCLK Z Price $14.70 $39.13 $9.36 $16.29 $22.48 Rating Buy Buy Buy Buy Buy

Important Disclosures
Analyst Certification
I, Yun Kim, hereby certify that all of the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations 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 total revenues, a portion of which is generated by investment banking activities. The analyst(s) also receive compensation in the form of a percentage of commissions from trades made through the firm in the securities of the subject company of this report, although not for any 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 past 12 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 analyst holdings (if any), rating definitions and overall ratings distributions. These disclosures can be found in the most recent complete research report 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 Buy/ Hold/Sell system. The new ratings appear in our Distribution of Ratings, Firmwide chart. To request historical information, including previously published reports or statistical information, please call: 866-288-8206, or write to: Director of Research, ThinkEquity LLC, 600 Montgomery Street, San Francisco, California, 94111. Buy: ThinkEquity expects the stock to generate positive risk-adjusted returns of more than 10% over the next 12 months. ThinkEquity recommends 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 stock is fairly valued. Sell: ThinkEquity expects the stock to generate negative risk-adjusted returns of more than 10% during the next 12 months. ThinkEquity recommends decreasing exposure to the stock. Distribution of Ratings, Firmwide ThinkEquity LLC
IB Serv./Past 12 Mos.
Rating Count Percent Count Percent

BUY [B] HOLD [H] SELL [S]

110 47 12

65.10 27.80 7.10

15 2 0

13.64 4.26 0.00

This report does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned. The information provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable.

Page 14

January 3, 2012

Company Report
Initiation of Coverage
The opinions expressed reflect our judgment at this time and are subject to change without notice and may or may not be updated. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which said offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state. This research report was originally prepared and distributed to institutional clients of ThinkEquity LLC. Recipients who are not market professionals or institutional clients of ThinkEquity LLC should seek the advice of their personal financial advisors before making any investment decisions based on this report. Stocks mentioned in this report are not covered by ThinkEquity LLC unless otherwise mentioned. Additional information on the securities mentioned is available on request. In the event that this is a compendium report (covers more than six ThinkEquity LLC-covered subject companies), ThinkEquity LLC may choose to provide specific disclosures for the subject companies by reference. To request more information regarding these disclosures, please call: 866-288-8206, or write to: Director of Research, ThinkEquity LLC, 600 Montgomery Street, San Francisco, California, 94111. Stocks mentioned in this report are not covered by ThinkEquity LLC unless otherwise mentioned. Member of FINRA and SIPC. Copyright 2011 ThinkEquity LLC, A Panmure Gordon Company

Page 15