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 (NASDAQ: ANGI  ) 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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