Are you looking to buy or sell a commercial real estate property? I have just the place to make it happen: it's a little-known place called the "internet". However, the internet is a vast and scary place unless you have a guide like LoopNet (Nasdaq:LOOP) that just happens to be the leader in online marketplaces for buyers and sellers of commercial real estate in the U.S.
Its service and others like it; are simply a more efficient way of bringing the interested parties together. There's no other method comparable. In 2004 the top five commercial real estate brokers in this country accounted for barely 15% of the total revenue in the commercial real estate services industry according to CB Richard Ellis. Most commercial real estate agents are independent contractors looking for inexpensive, effective methods for marketing their properties. LoopNet has stepped in to provide such a tool to customers like CB Richard Ellis Group (NYSE:CBG) and Grubb and Ellis (NYSE:GBE). It's definitely a great business; but is it a great stock?
Business Is Solid
In May, LoopNet had 850,000 unique visitors to its site, five times more than any other commercial real estate website. Total members grew 39% to 2.78 million over the first quarter 2007. This translated into increased revenues in the first quarter. Sales were up 33% to $20.6 million from $15.5 million and adjusted EBITDA was up 31% to $9.6 million from $7.3 million in 2007.
Its guidance for the entire of 2008 includes revenue of $86.3-88.3 million with adjusted EBITDA of $37.5-39.5 million. With revenue in fiscal 2007 of $70.7 million and adjusted EBITDA of $34.0 million, you're looking at increases of 22% and 10.3% respectively. LoopNet's compound annual growth for revenue in the last five years is 61.2%, providing a clear sign management thinks the current economic environment will moderate growth in 2008. Maybe so, but LoopNet's still making great money. If this is what bad is, I'll take it. (For more on evaluating companies, check out Advanced Financial Statement Analysis.)
A Little About The Business Model
LoopNet came to be in June 1997. It is the largest online marketplace for commercial real estate in the U.S., with approximately 560,000 listings on the site at the end of 2007. It offers a basic membership that is free to use with limited functionality. For those looking for more, it offers a premium service, with users getting more in-depth reports on individual properties, industry trends, etc. A premium membership is available for $359.40 on an annual basis, $119.85 quarterly or $49.95 monthly. With Over 88,000 paid premium subscriptions, out of 2.75 million users, it stands to make approximately $700 annually from each premium membership.
In addition to the subscription fees, it generates revenue from advertising on its sites as well as database and marketing services to commercial real estate firms. Its gross margins in the last three years have been 87.7%, 88.4% and 88.6% while operating margins were 36.2%, 43.7% and 41.5%, generating excess cash. At the end of March 2008, it had $73 million in greenbacks, and that's after repurchasing 9.3% of its shares in for $39.1 million. (For more on business types, check out Getting To Know Business Models.)
Not Just Real Estate
In October 2004, LoopNet acquired BizBuySell, an online marketplace for the sale of businesses. At the end of 2007, the site had slightly less than 50,000 listings. It makes money charging business sellers a fee of $59.95 to $99.95 per listing per month to list their businesses. It also offers a service called BrokerWorks where business brokers pay a membership fee to list an unlimited number of businesses. Interested buyers view listings free. Brokers pay a set-up fee of $24.95 and a monthly subscription fee of $49.95.
Other initiatives to grow the business include entering into a strategic alliance in June of 2007 with Xceligent Inc., a Boston-based commercial real estate research firm. LoopNet also acquired smaller competitor Cityfeet.com, whose brand it plans to grow; and finally in April, 2008, it bought software developer REApplications, whose products make it easier for commercial brokers to manage their commercial real estate listings. It has plenty in the pipeline to keep itself busy.
Bottom Line
With an EBITDA similar to that of its biggest competitor CoStar Group (Nasdaq:CSGP) at $32 million, Loopnet has $125 million less in revenue. Given its stock is down 60% in past year, I believe this real estate business has a stock to match. I'd take a serious look.
For more on commercial real estate investment, check out Find Fortune In Commercial Real Estate.
