Ring in the new year with more stocks for 2008.
The year is just about over, and now you're looking ahead toward 2008. It's time to make that New Year's resolution, and it probably won't have anything to do with real estate, considering how ugly things got in 2007. But wait! If you don't think about real estate, you might actually overlook a leader of the less volatile commercial real estate market: LoopNet (NASDAQ:LOOP).
Our house ...
LoopNet is a one-stop shop in the widely fragmented commercial real estate market. In LoopNet's own words, its services allow subscribers to "list, search, market, research, and finance commercial real estate properties over the Internet." The online marketplace connects buyers and sellers, much as eBay (NASDAQ:EBAY) does for consumers. And the company boasts both the largest network of its kind, with 2.5 million registered members, and the most heavily trafficked commercial real estate website, with almost 915,000 average monthly unique visitors. When you figure that LoopNet has 535,000 listings for $425 billion of property available for sale, you can see why it's an attractive magnet for industry professionals.
LoopNet's business model relies mostly on its real estate platform and the premium subscribers that come from it. Anyone can register for access to the company's free listings, but it's the monthly paid subscriptions that provided 76% of the company's revenue last quarter.
|
Total Members |
Premium Members |
Average Monthly Premium Subscription Price |
Estimated Quarterly Revenue From Premium Subscriptions | |
|---|---|---|---|---|
|
Q4 2005 |
1.1 million |
57,000 |
$44.96 |
$7.7 million |
|
Q4 2006 |
1.7 million |
78,000 |
$47.26 |
$11.1 million |
|
Q3 2007 |
2.4 million |
90,000 |
$53.07 |
$14.3 million |
The revenue from premium subscriptions has almost doubled in less than two years from both an increase in premium memberships and the price paid per month. Don't be fooled by the average monthly premium subscription price, either. Brand-new premium subscribers are charged $89.95 a month. LoopNet also started offering a tiered price scheme based on usage, since its membership is not one-size-fits-all. This should drive more revenue while appeasing a larger audience.
... is a very, very, very fine house
It's this consistent subscription model that gives LoopNet its financial stability and growth over online residential real estate companies such as HouseValues (NASDAQ:SOLD) and IAC/InterActiveCorp's (NASDAQ:IACI) RealEstate.com, which rely heavily on lead generation.
But that doesn't mean LoopNet isn't facing competition. Its closest competitor, CoStar (NASDAQ:CSGP), provides research and in-depth property information for commercial real estate agents. Websites such as eBay and Craigslist, and even search engines such as Google (NASDAQ:GOOG) and Yahoo! (NASDAQ:YHOO), provide classified listing services for sellers. It's just that LoopNet offers all of these things in one destination, with a website frequented by more than 2.5 million members.
What also helps LoopNet solidify its position as the industry standard is that "virtually all of the top commercial real estate firms in the U.S." use it. The company has struck syndicated partnerships with newspapers such as The Wall Street Journal and The American City Business Journal, in addition to more than 100 newspaper partners that its CityFeet acquisition brought into the fold.
With free cash flow in the yard ...
The company's financial position? Sturdy as a cement block. Since its operations are online, LoopNet has an asset-light model. And with few capital expenditures, the company generates strong free cash flow. Over the first nine months of this year, LoopNet generated free cash flow of $20.4 million, which equates to 40% of its total revenue over the same time frame. And that's not unique to this year. The company has been profitable and generated positive cash flow every quarter since 2003, thanks to its business model. And it does all of this with no debt on the balance sheet and rich margins -- enough to allow the company to have beaten Wall Street estimates in every quarter since it went public.
So let's recap here:
- A small-cap company that's growing its user base substantially.
- A comprehensive product that the top firms in the industry use.
- A low cost structure coupled with growing subscription revenue.
- Ability to generate impressive free cash flow without carrying any debt.
- A company whose insiders own about 10% of the shares outstanding (OK, I just added this one, but it's important)
... life isn't so hard
So is this the stock for your portfolio in 2008? Can this small-cap company -- or any small-cap company -- help your portfolio make that cool $1.3 million? If you think LoopNet is a compelling stock for the new year, head on over to CAPS and mark the company as an outperform. Then tune in later this week, when we announce the best stock for 2008.
