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Author: Har1en Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 34  
Subject: Ziprealty CC Observations Date: 3/12/2009 6:09 PM
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Looks like I'm the only one posting here. That's okay. Maybe I'll crosspost to somewhere with some traffic.

Well, if you want to hear the CC, click to their IR site: http://phx.corporate-ir.net/phoenix.zhtml?c=180169&p=iro...
For their statement and numbers (including some cash flow info):
http://tinyurl.com/dcvhav


Here are my opinions and general impressions of their CC:

They seemed very, very optimistic about the future without being outrageous. While acknowledging the very real problems out there, they remained pragmatic in their statements.

They disclosed their cash flow issues (my major beef with management). They pointed out that most of their cash flow came from a share redemption that they had to do earlier in the year (I remember this now). Other than that for 2008 they used about $11.6MM for operations.

That number was not as bad as I expected. They have about $50MM in assets, so that gives them about 4 years at the current burn rate, assuming no additional judgments or problems. And they remain debt free. Management said they expect about the same cash-burn-rate for 2009 and I agree.

They had good things to say about the housing market in California. They experienced some homes with multiple bids on them and an increase in the traffic on their site, as well as dramatically increased interest in buying. The main problem everywhere is the inability of buyers to meet the credit quality standards of the newly conservative lending institutions.

Still, Zip's management see California as nearing an equilibrium, and since CA seems to be a leader in national trends (my own perspective) the other markets should follow behind by about 9-15 months. They pointed out that CA prices have dropped substantially to meet this equilibrium, and that volumes will remain hampered so long as obtaining credit is a problem.

Overhanging this positive focus, they warned wisely that all bets were off if unemployment really ramps up. Still, if they have to burn through 25MM this year, they will have 25MM left in the bank for 2010 before they need to acquire additional financing.

I was (as usual) unimpressed by the questions posed by the analysts on the call. I was not able to ask my own questions, so I will ask them here:

1) During tough times, the best and brightest agents will come to ZIPR so that they can get guaranteed paychecks. During good times, won't these same agents flee and go back to the high-reward high-price brokerages to get rich again? What is management doing to keep these folks around during the good times? Will it cut into profits? Will it be cost-effective? Or will they just let them leave?

2) What kind of volume or price changes would be necessary before they can turn cash flow positive? Even if the markets stabilize nationally, they will stabilize at lower average prices which means that their revenues will suffer. Even if they were to double their volume, would that be enough to turn cash flow positive at the lower price points? I'm not even talking positive earnings here... I will have to look at their margins more closely to see how this could pan out.

[Disclosure: I still own this one. Thinking about buying more at some point before housing turns around.]

Har1en
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