Why Angie's List Shares Tumbled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Angie's List were falling behind today, dropping as much as 16% after disappointing the market in its second-quarter earnings report.

So what: The service-recommendation website posted a per-share loss of $0.25, in line with estimates and an improvement from a loss of $0.41 a year ago. Revenue also matched estimates, growing 62% to $59.2 million, as subscriber sales were up 41% and revenue from businesses reviewed on the site increased 72%. Angie's List even cast its current-quarter revenue projection slightly above estimates at $65.5 million, calling for sales between $65.5-$66.5 million, but shares seemed to fall because they'd been bid up so high this year, appreciating 121% on little fundamental strength.

Now what: With a P/S ratio close to 9 and no profits to show for itself, Angie's List seemed due for a correction. The company spends about 80% of its revenue on sales and marketing and I'm skeptical of its ability to grow without the parallel investment in promotion. Top-line growth of 62% is certainly promising, but this is by no means a start-up, having launched in 1994. With a track record like that and competition from free services like Yelp, I'm not sure if Angie's List will ever make it out of the red.

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The article Why Angie's List Shares Tumbled originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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