By Chandni Doulatramani and Supantha Mukherjee
(Reuters) - Angie's List Inc <ANGI.O> expects cashflow to turn positive this year as it spends less on acquiring new paid customers for its consumer review website, the company's co-founder said, fending off criticism of its business model by short-seller Citron Research.
Chief Executive William Oesterle said Angie's List, which compiles reviews on everything from plumbers to pediatricians, said a recovery in U.S. consumer confidence might also help the company to post its maiden profit in 2014.
"What is most important for our business is cashflow," Oesterle told Reuters in an interview. "So this is really the year of transition."
Named after Angie Hicks, who co-founded the company with Oesterle nearly two decades ago, Angie's List has nearly doubled in value since going public in November 2011. Its current market capitalization is about $1.34 billion.
None of the 16 analysts covering the company has a "sell" rating on the stock, according to StarMine. Eleven have a "buy" or a "strong buy" rating.
The company, which competes with Yelp Inc <YELP.N> and privately owned HomeAdvisor Inc, posted its first ever quarterly positive cashflow in the three months ended March 2013 after reducing its marketing costs.
"The marketing dollars that they spend for subscriber acquisition has gone down dramatically ... word of mouth and so forth is a bigger contributor to getting new subscribers," said Mike Hickey, an analyst at National Alliance Securities.
For every paid member of its website, it spent $72 on marketing in the quarter, compared with $82 a year earlier.
"At any fixed level of marketing (costs), or even with somewhat sizeable increases in marketing, the business has the ability to turn a profit," Oesterle said, looking ahead to 2014.
"The improving consumer economy will undoubtedly help us in some ways."
But Angie's List has also been losing cash ever since its IPO; at $42.6 million, its cash-in-hand at the end of the first quarter was half the level at the time of its listing.
The company also ranks poorly on a range of valuation scores, scoring just 3 out of 100 on the Thomson Reuters StarMine Relative Valuation model. The lower the score, the more expensive the stock.
In a highly critical report this month, Citron Research said Angie's List's business model was flawed because a requirement for reviewers to use real names discouraged negative reviews and could lead to harassment to those who post negative feedback.
Citron said Angie's List could be worth $6 a share "if the company can defy all history and common sense".
Its shares were trading at $23.63 on the Nasdaq on Thursday afternoon, up nearly 3 percent.
MILLIONS OF RATINGS
Oesterle rejected Citron's assertion that Angie's List was built around a system rigged to assemble and display "A" reviews - the highest of six possible ratings that run through to "F".
"Even the most cursory review of the site will demonstrate that we have millions of ratings on millions of companies that are below an 'A'," he said.
"All you have to do is read the site and do the slightest amount of research, and you can find all of those companies."
First-time visitors to the Angie's List website will be offered free memberships and asked to review service providers in their local area. Businesses are rated only when a member submits a report.
Membership fees are charged when the number of members and businesses reviewed in a certain area rises, but Angie's List makes most of its revenue from advertising. Only companies rated "A" or "B" are allowed to advertise special offers on the site.
"We have ratings on something like 2 million companies, and yet there are only 300,000 companies that are eligible (to advertise) because of their grade and the number of current reports," Oesterle said.
"The vast majority of the service providers on our site don't pay us anything at all."
National Alliance's Hickey recommends buying the stock. He is also a subscriber to a site used by more than 1.5 million households, according to Angie's List itself.
"A lot of people like it because a lot of the advertisers give discounts," said Hickey, who is ranked four stars out of five for the accuracy of his earnings estimates on Angie's List, according to StarMine.
"I like the discounts and advertising because it pays for my subscription," he said.
(Editing by Robin Paxton)