LOS ANGELES (AP) — Shares of Ellie Mae Inc. tumbled on Wednesday after William Blair analysts downgraded the software company's shares, saying they believe that investor expectations for the stock are too high.

THE SPARK: William Blair analyst Brandon Dobell downgraded Ellie Mae's stock to "Market Perform" from "Outperform."

THE BIG PICTURE: Ellie Mae, based in Pleasanton, Calif., provides software to U.S. mortgage lenders that streamlines the process of originating home loans.

The company is making the transition from a model of licensing software to a higher-priced, software-as-a-service (SaaS) model. It recently introduced a loan program that represents a significant expansion of its market.

THE ANALYSIS: In a research note, the William Blair analyst said he believes Ellie Mae will have a challenging time trying to drive growth in new bookings because it already has significant market penetration.

In addition, the analyst noted that an expected increase in new mortgages for homebuyers as the housing market continues to recover may not offset a likely decline in refinancing business in coming years.

"The magnitude of market-driven upside is likely to be lower in the future than it has been in the past," Dobell wrote.

Ellie Mae's bookings growth also is unlikely to grow fast enough to compensate for an inevitable slowdown in new business from users converting to the company's higher-priced software-as-service model, the analyst said.

In addition, the analyst said that investors appear to have focused on Ellie Mae's explosive growth in average revenue per user, or ARPU. While Dobell anticipates that the company will continue to post strong ARPU growth, he believes that it's unlikely to significantly exceed investor expectations.

The analyst believes that Ellie Mae's new-user bookings accounted for only 41 percent of all bookings in 2011. He also believes that share will decline to 20 percent of estimated 2012 bookings, and that new SaaS user bookings growth has been negative since the fourth quarter of 2011.

The analyst noted that Ellie Mae management has said that new-user booking growth has declined because the company was focused on converting existing users to its new software model, and that it will double the size of its sales staff assigned to new customers.

"However, we believe re-accelerating new-user bookings growth will prove challenging because of Ellie Mae's already significant market penetration," Dobell wrote.

SHARE ACTION: Ellie Mae shares fell $2.17, or 8.3 percent, to $24.09 in afternoon trading. The stock is down 13 percent since the start of the year.