Homestore's Still Housecleaning

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Homestore (Nasdaq: HOMS) is a poster child of the go-go 1990s. The company burned huge amounts cash, pursued many big deals at lightning speed, and, unfortunately, engaged in questionable accounting.

Yes, in the past few years, there was a need for lots of housecleaning. There's no doubt current management has done a wonderful job with the restructuring.

But the sins of the past keep revisiting the company. Yesterday, Homestore's stock plunged 14.7% on the release of its quarterly report. In fact, the company was not alone, as other Net stocks got whacked, such as IAC/InterActiveCorp (Nasdaq: IACI) and ValueClick (Nasdaq: VCLK).

As for Homestore, the company was able to grow revenues 5% to $56.8 million in the second quarter, although that was below the consensus estimate of $58 million. The company sustained a loss of $0.03 a share, which was worse than the expected $0.01 loss.

On the conference call, management indicated several reasons for the miss. There is the outstanding shareholder litigation, as well as the significant costs of Sarbanes-Oxley. In fact, the costs of regulatory compliance are becoming a major problem for many small caps, as Bill Mann points out in Your Ownership Is Revoked.

While other restructurings -- such as Tyco's (NYSE: TYC) -- have worked well, it is typical for the process to be unpredictable and longer than most expect. That appears to be the case with Homestore. And, in the current environment, investors do not want to wait.

Fool contributor Tom Taulli is the author of The EDGAR Online Guide to Decoding Financial Statements . He does not own shares in any of the stocks mentioned.