When your model is threatened and your earnings growth crumbles, picking up the pieces and erecting a new foundation is better than nothing. Motley Fool Hidden Gems recommendation HouseValues
In its March quarter, the company behind the HouseValues.com site saw revenue climb 53% higher, to $26.9 million. Earnings contracted to $0.06 a share from an $0.11-per-share showing last year -- or $0.09 if you back out stock-based compensation. Analysts were only expecting the company to earn $0.05 a share for the period.
The company also was able to stick to its February guidance, which calls for earnings to hit $0.24 to $0.30 a share this year. Analysts had been expecting the company to earn $0.69 a share before last quarter's reduced guidance.
I'm thinking revenue growth will slow at this point. The company is sticking to its top-line outlook for $105 million to $115 million in revenue. Back out the first-quarter production, and the target implies that revenue will climb between 13% to 28% over the next three quarters.
I'm not a fan of the HouseValues.com site. I found it to be too invasive for a thinly-veiled gimmick meant to generate leads for paying realtors. Its model is challenged by easier-to-use sites like Zillow on the consumer side, and rising online advertising prices on the baiting side.
I am a bit more encouraged about some of the company's newer ventures, like TheLoanPage and HomePages, but the former still has to cope with higher per-click advertising costs and the latter is too darn skimpy in terms of listed properties.
These are clearly challenging times for HouseValues. It has the cash-rich balance sheet to see it through this lean period, though I'm guessing that its business model will be dramatically different in a few years.
The trouble's not necessarily a cooling housing market. HouseValues should be fine there, since lead generation will be at a premium. I like somewhat-related companies like Move.com
With a third of its market cap spoken for, given HouseValues' bountiful cash and short-term investments, there is a value argument to be made here -- if HouseValues can sustain its profitability and build on it. It may take an extreme home makeover to achieve that, but the company at least has different baskets than its iffy namesake one. It's a good start, but a long way to the finish line.
Longtime Fool contributor Rick Munarriz isn't interested in selling his home, even if he recognizes that the once red-hot South Florida market is cooling off quickly. He does not own shares in any of the stocks mentioned in this story. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
