LoopNet's Lunch Is Safe for Now

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There's certainly no love lost these days in the grudge match between LoopNet (Nasdaq: LOOP) and CoStar Group (Nasdaq: CSGP). LoopNet had to answer a court order and admit that 2.1 million of its 3.3 million registered users hadn't logged onto its online real estate listing service in the past year, and CoStar has been positively crowing over the apparent victory. While harping on the "diminutive" size of LoopNet's business, CoStar has seized on the opportunity to assert its own customers' "extraordinary demonstration of acceptance" of its own listing service, Showcase.

Fortunately for those of us concerned with the actual state of competition between the two, CoStar recently provided some figures on Showcase that allow us to measure reality against bravado. In this case, it looks like CoStar won't be eating LoopNet's lunch anytime soon.

Reality meets rhetoric
In its fourth-quarter conference call, CoStar revealed that Showcase is "fast approaching the $3 million mark in annualized sales." The obvious question is: How fast? If we generously assume that Showcase reaches this milestone by next quarter, that will amount to 50% growth from the $2 million in annual subscriptions Showcase claimed last June. While that growth rate certainly isn't anything to scoff at, it also isn't the sort of wildly explosive growth that should have LoopNet investors running for the exits. Considering that Showcase's $3 million in revenue amounts to only 3.5% of the $86 million in revenue that LoopNet generated in the trailing 12 months, CoStar would have to post significantly more impressive numbers for Showcase to become an acute concern for LoopNet.

The sales numbers only reflect those paying to list on Showcase, though. What about the growth in the number of searchers? CoStar claimed a 50% growth rate in total search volume from the third quarter to the fourth, adding roughly a million searches. At first glance, that growth seems to qualify as "extraordinary," but the figure is curiously countered by a mere 5% increase in property views in the same time period. In order to resolve the discrepancy, one must decide which figure is more indicative of real market relevance, and on this front, property views definitely seem more telling. After all, why is search volume important if those searchers aren't actually looking at listings? And again, while the 5% sequential increase in property views is laudable, it's not amazingly impressive.

A thorn in LoopNet's side
While these results indicate that Showcase isn't a particularly pressing threat to LoopNet, that doesn't mean that LoopNet investors are out of the woods in the longer term.

According to CoStar, Showcase is already a profitable product, so there is every reason to expect CoStar to hang around and continue to challenge LoopNet. Unlike Blockbuster (NYSE: BBI) in its battle with Netflix (Nasdaq: NFLX), CoStar will never have to concede as long as it's not hemorrhaging money trying to compete. Furthermore, even if Showcase just continues to plod along at its current growth rate, it eventually will become large enough to be significant competition for LoopNet.

That's a mere possibility in a very uncertain future, though. For now, LoopNet investors can breathe a little easier.

For More on LoopNet:

• LoopNet: Like a Box of Chocolates
• This Stock May Be at Risk
• Is LoopNet a Value Trap?