Why Angie's List Shares Tumbled

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 taking a beating today, falling as much as 17% after The Wall Street Journal reported it was cutting its membership prices by 75%.

So what: The service-recommendation provider cut annual subscriber fees from $40 to $10, but the Journal said this afternoon that prices appeared to be back up to $40. The price cut seems to indicate the service was having trouble attracting new subscribers at the $40 rate, a serious concern given that Angie's List is still operating at a loss. Without user growth, it's hard to see the company ever making money. Businesses that advertise on the site contribute the majority of revenue, about 75%, but advertising revenue seems unlikely to improve without additional subscribers.

Now what: Even before today's slip-up, Angie's List's business model has seemed flawed. The company is up against steep competition from the likes of Yelp and Google, but sees its paying subscriber base as a value-add for advertisers. However, that claim seems not to be the case if the listings provider feels the need to slash its subscription fee by 75%. It's unclear why the company may have reversed the decision, as the Journal claims, though perhaps the stock sell-off explains the move. Analysts expect the company to swing to a profit, but free competition may put a dent on subscriber growth no matter what the price is.

Looking for a better Internet stock?
This incredible tech stock is growing twice as fast as Google and Facebook, and more than three times as fast as Amazon.com and Apple. Watch our jaw-dropping investor alert video today to find out why The Motley Fool's chief technology officer is putting $117,238 of his own money on the table, and why he's so confident this will be a huge winner in 2013 and beyond. Just click here to watch!

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 insightsmakes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Originally published