Foolish Forecast: Looking for LoopNet

Have you ever met a "perfect" stock? If not, allow me to introduce Motley Fool Hidden Gems recommendation LoopNet (Nasdaq: LOOP). According to Earnings.com, this eBay (Nasdaq: EBAY) of commercial real estate has never missed an earnings target in its short public-market history. Tomorrow, the company tries to keep its streak alive as it reports Q4 and full-year 2007 earnings.

What analysts say:

• Buy, sell, or waffle? Half a dozen analysts take a loupe to LoopNet, giving it twice as many buy ratings as holds.
• Revenue. On average, analysts expect to see quarterly sales rise 39% to $19.2 million.
• Earnings. Profits are predicted to shed a penny, dropping to $0.12 per share.

What management says:
Based on the above, it looks like analysts were only listening to LoopNet's last quarterly report with one ear. Or perhaps they tuned in late (twice), only hearing the top-o'-the-range predictions management gave for Q4 performance. In fact, LoopNet itself says its earnings could as easily be $0.11 as $0.12, while revenue will range from $18.9 million up to $19.1 million. Wall Street's optimism sets up LoopNet investors for a tumble if the company "misses" these estimates tomorrow. Still, I can't fault the analysts for wanting to live on the sunny side of the Street. 

What management does:
Speaking of sunny, LoopNet boasts margins that will absolutely warm your heart. While the net has come down a bit now that the company is again paying income tax on its profits, we're still looking at a firm that's more profitable than any companies that might be sniffing around to boost their own margins. Google (Nasdaq: GOOG)? Yahoo! (Nasdaq: YHOO)? One's in the 20s for net margin; the other's not. I'll let you guess which is which. Either might be interested in LoopNet's more profitable business line.

Margins	6/06	9/06	12/06	3/07	6/07	9/07
Gross	88.2%	88.3%	88.4%	88.5%	88.7%	88.8%
Operating	42.1%	42.0%	43.7%	43.0%	42.2%	42.3%
Net	52.8%	48.3%	32.0%	31.8%	31.7%	31.9%

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:
That, incidentally, is probably the main problem with this stock: Potential competition. As fellow Fool Rick Munarriz intimated in last quarter's update, now that LoopNet has bought out its nearest competitor (the new "nearest" is a firm called CoStar Group (Nasdaq: CSGP), by the way), LoopNet's got serious pricing power on its side. Exercising that power by jacking its rates 17% over the past year is likely cutting into its growth, however.

More seriously, though, the ability to jack up rates in a tough economy, combined with the superb margins LoopNet's already boasting, seem likely to attract intense competition from the titans of Internet advertising. Keep a close lookout for slowdowns in premium subscriber growth at LoopNet tomorrow. Keep a closer lookout for news that Google or Yahoo! is making serious efforts to cut LoopNet's rise short.