Investors Feeling Pain of Homestore's Stalled Turnaround

That promise looked to have some substance to it. Despite the revenue fall-off, Homestore shored up its bottom line in each of the last two years. In the first six months of this year, the company actually posted revenue growth. And in the latest quarter, Homestore narrowed its net loss to $4.3 million, or 3 cents a share, from $91.5 million, or 78 cents a share, in the year-ago period.

Meanwhile, the company's core media services segment posted an operating profit of $7.7 million in the second quarter, up from $5.4 million in the first quarter and a $361,000 loss in the year-ago period.

The company seemed to hit its inflection point in the first quarter, when it posted year-over-year revenue growth for the first time in two years, said Mahaney, who expects Homestore's fundamentals will continue to improve.

Because of what was seen as a fledgling turnaround, the company clearly disappointed analysts with its latest earnings report. Homestore attributed much of its problems to increased legal fees and costs related to complying with the Sarbanes-Oxley Act.

The legal fees are related to a shareholder suit that arose out of the company's accounting fiasco. Homestore reached a settlement agreement with the plaintiffs in the case, but that agreement is the subject of an appeal.

As for Sarbanes-Oxley, Homestore's complaint about rising administrative costs related to complying with the mandate to verify internal auditing controls echoes those made recently by other small-cap companies.

But it's hard to know whether such a complaint is legitimate or whether companies are simply using it as a convenient excuse to explain poor results, said Mark Argento, an analyst with Think Equity Partners. Regardless, Homestore should be able to overcome these administrative costs and start posting profits, he said.