NEW YORK_Shares of eHealth Inc., a Web site that markets health insurance to consumers and small businesses, tumbled Wednesday as analysts flagged slowing applications and what the company called a "disappointment" in paid search during its second quarter.

Its shares dropped $2.37, or 12.5 percent, to $16.53 Wednesday afternoon on more than double average volume. The stock's traded between $8.38 and $19.60 in the past 52 weeks.

Despite reporting second-quarter sales and profit that topped analysts' expectations on Tuesday, the Mountain View, Calif., company said submitted applications for individual and family insurance rose 17 percent to 121,100 in the second quarter from last year. That's slightly slower than the 18 percent pace in last year's second quarter and 23 percent year-over-year growth in the first three months of 2009, said Jefferies analyst Youssef Squali in a note to investors Wednesday.

Squali also said paid search was "underperforming," a sentiment echoed by Stifel Nicolaus analyst George Askew, who downgraded his rating on eHealth to "hold" from "buy."

"The company's failure of execution in paid search advertising in the quarter, the source of one-fourth of submitted applications, provides reason enough to step to the sidelines," Askew said. Submitted applications through the paid search channel were flat compared to last year, despite spending more on marketing and advertising, he said.


That's a marked slowdown from the five quarters through the first three months of this year, when applications via paid search grew in a range between 10 to 20 percent each quarter, he said. The company boosted its spending on marketing and advertising by 36.5 percent in the second quarter.

Squali believes that the company's management is "aggressively addressing" its problems in paid search, but Askew said he's not confident eHealth has a plan to restore growth.

"We have recognized the paid search issue that we have and we are currently working on bringing paid search back on track," said Gary Lauer, eHealth's CEO, on a conference call with analysts Tuesday.

EHealth said on Tuesday after markets closed that it earned $3.99 million, or 16 cents per share, in the three months ended June 30. That's down 5.2 percent from the $4.20 million, or 16 cents per share, earned in the same period last year.

Sales rose 22 percent to $33.4 million.

Analysts polled by Thomson Reuters had expected, on average, per-share profit of 15 cents and revenue of $33.1 million.

The company also backed its full-year guidance, saying it expected sales between $131 million and $136 million and per-share profit from 51 cents to 61 cents.

That's in line with analysts' expectations.

EHealth is a technology company that partners with more than 180 health insurance companies to sell plans online.