On the surface, Angi (ANGI 6.34%) delivered strong results in its second-quarter earnings report last Tuesday. The online home-services marketplace, which was formed by the 2017 merger of HomeAdvisor and Angie's List, reported that revenue grew 23% to $515.8 million, its fastest pace since 2018 -- and well ahead of estimates of $496.5 million.

On the bottom line, the company reversed an adjusted loss in earnings before interest, taxes, depreciation, and amortization (EBITDA) in the quarter a year ago to post an adjusted EBITDA profit of $9.7 million, its first EBITDA gain in three quarters. Yet, in spite of the strong results and other positives in the quarter, including a return to revenue growth in its ads and leads segment, the stock still sunk 15% on the report.

The culprit seemed to be weak results in July as revenue growth slowed to just 10%, and growth in its fast-growing services segment -- the pre-priced home services business it launched a few years ago -- came in at just 18% after jumping 107% in the second quarter. The pre-priced services business gives customers an upfront price when they book jobs, while the ads and leads business just connects the homeowner with the service provider. 

The most obvious explanation for that downshift was that the company lapped its acquisition of Angi Roofing last July, meaning its numbers won't get a boost from adding that business anymore.

CEO Oisin Hanrahan explained that the slowdown in revenue growth was also due to operational challenges in the roofing business around pricing, supply chain, labor, and other areas, which he said were self-inflicted. Angi acquired a roofing company, Total Home Roofing, last July, making the leap into being a first-party service provider, away from its traditional role as a marketplace.

As a result, management is dialing back the roofing business to correct those errors. Excluding roofing, revenue from the services business was up a solid 34%, showing continuing interest in the pre-priced offering, which Hanrahan said is the product that gets the highest customer satisfaction.

Meanwhile, the legacy ads and leads business returned to revenue growth as it benefited from a slowdown in home improvement demand, which leads more pros to come to the platform to advertise their services.

Management expects EBITDA to be higher in 2022 than it was in 2021 since Angi has passed the peak of its investment in the services business, and it's also rolling off headwinds from its rebrand last March. The company sees increasing profitability over the rest of the year. While management didn't give more specific guidance, it said it's aiming to get back to 15% to 20% top-line growth.

Why the stock is down

Angi holds a lot of potential. It's the clear leader in its industry and has an enormous addressable market. However, the company has struggled to monetize it. Its predecessors, Angi and HomeAdvisor, were both founded in the 1990s, yet Angi is still unprofitable on the basis of generally accepted accounting principles, and its revenue growth has lagged behind the typical pace of a growth stock.

The 2017 merger between Angie's List and HomeAdvisor was engineered by IAC, a holding company with a long track record of success at spinning off two-sided online marketplaces like Match Group, Vimeo, Lending Tree, and Expedia. However, IAC has struggled to create value with Angi as the stock is now down by more than 50% nearly five years after the merger was completed.

Angi seems to have suffered from both unforced errors and outside challenges. A year and a half ago, the company brought in its third CEO since the merger, Hanrahan, and rebranded under Angi, which dealt a greater-than-expected setback to its search engine results, a primary marketing tool. More recently, problems with the roofing business offer another example of a self-inflicted wound, and the pandemic has posed a range of challenges too. 

What's next for Angi

The key question for Angi and its investors is whether the company can unite the highly fragmented home services market, where connections are primarily made through word-of-mouth leads and personal referrals. The company's best bet for taking share from word-of-mouth is the services business as it receives all of the customer spending there. The services business has grown briskly with the exception of the roofing setback, while the company expects mid-to-high single-digit growth in the ads and leads segment.

At this point, it's not surprising to see Angi shares down since the company lacks the consistent growth that investors like, and it has also struggled to turn a profit. The guidance for increasing EBITDA is promising, but the company might need a few quarters to get revenue growth back to 15% to 20%. If it can't do that, it could be time to give up on the turnaround story.