Foolish Forecast: Taking a Loupe to LoopNet

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Have you ever met a "perfect" stock? If not, then allow me to introduce you to Motley Fool Hidden Gems recommendation LoopNet (Nasdaq: LOOP). According to earnings.com, this eBay-of-commercial-real-estate has never missed an earnings target -- that's seven straight quarters' worth of "earnings beats." Tomorrow, the company tries to make it an even two years of outperformance with its Q1 2008 report.

What analysts say:

• Buy, sell, or waffle? Seven analysts run circles 'round LoopNet, giving it five buy ratings and a pair of holds.
• Revenues. On average, they expect to see sales rise 30% to $20.2 million.
• Earnings. Profits are predicted to add a penny, making $0.12 per share.

What management says:
Despite exceeding expectations last quarter, the analysts appear to be hedging their bets on LoopNet this time around. Whereas three months ago, Wall Street seemed uninterested in LoopNet hitting anything less than the tippety-top of its guidance range, this time around the company's getting cut some slack. Emphasis on "some." The Street's predicted revenue amount sits squarely within management's guidance range of $20.1 million to $20.3 million. The $0.12 in earnings, in contrast, is the max LoopNet allowed last quarter. Why the qualified leniency this time around? Perhaps because, as fellow Fool Rick Munarriz pointed out, LoopNet's residential real estate peers HouseValues (Nasdaq: SOLD), ZipRealty (Nasdaq: ZIPR), and Move (Nasdaq: MOVE) are having a tough time of things lately. Perhaps because similar online lead generators like Bankrate (Nasdaq: RATE) missed earnings last quarter, while The Knot (Nasdaq: KNOT) "beat," but with fewer profits than last year. 

What management does:
Whatever the reason, shareholders should be pleased to see that LoopNet has a wider hoop to jump through tomorrow. After last quarter's reversal in gross margin expansion, and attendant declines in operating and net profitability, LoopNet could use the slack.

Margins	9/06	12/06	3/07	6/07	9/07	12/07
Gross	88.3%	88.4%	88.5%	88.7%	88.8%	88.6%
Operating	42.0%	43.7%	43.0%	42.2%	42.3%	41.5%
Net	48.3%	32.0%	31.8%	31.7%	31.9%	29.9%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
If you look closely at the table above, I think you'll agree that the biggest change at LoopNet, profitability-wise, is the steep falloff in net margin. But 30% net margins are still nothing to sneeze at -- that's more than three times the profit-pennies that rival CoStar Group (Nasdaq: CSGP) squeezes from its revenue dollars. But it's also a steep decline from the 48% that LoopNet was collecting back in 2006.

To Fools worried over the decline, Rick offered a few words of reassurance last quarter:

Don't be small-f fooled by the meager bottom-line gain at the leading online marketplace for commercial real estate listings. The company is being taxed at a higher rate these days. Go back a few lines to pre-tax operating profits, and you'll find LoopNet growing by a respectable 31%.

Thanks for the tip, Rick. I'll have to put my analytical loupe a bit closer to the income statement going forward, to make sure what I'm looking at is apples and apples, not apples and kumquats.

Of course, the easier way to mind all these picky little details is to just outsource your analytical work to Motley Fool Hidden Gems (free trials of the service can be claimed here), where our analysts' loupes are as well-polished as their eyes are sharp.