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.

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

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