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Earnings beat expectations 14 cents versus 12, yet LOOP is down after hours. Par for course for Mr. Market, or is there some hidden bad news not discernible in the numbers they posted?

Humbly,

Slothrop and his Monkey
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No. of Recommendations: 6
4Q 2007 Highlights

** Sales up 41% to $19.6 million from $13.8 million in 4Q 2006
** Cost of sales $2.31 million from $1.58 million in 4Q 2006
** EBITDA up 40% to $9.4 million from $6.7 million in 4Q 2006
** Effective tax rate 38.1% from 25.8% in 4Q 2006

** Net income $5.7 million ($0.14 per share) from $5.3 million ($0.13 per share) in 4Q 2006
** Profit margin 29.14% from 38.43% in 4Q 2006
** Diluted share count 40,672,000

** Cash flow from operating activities $9.72 million from $4.11 million in 4Q 2006
** Cash flow from investing activities -$1.6 million from -$130K in 4Q 2006
** Cash flow from financing activities $10K from $1.23 million in 4Q 2006

** $107.9 million in cash
** No debt

** Registered LoopNet members up 45% to 2,567,729 from 4Q 2006
** LoopNet premium members up 12% to 88,340 from 4Q 2006
** Average monthly price of premium membership $56.00 from 4Q 2006
** Active commercial real estate listings up 22% to 560,000 from 4Q 2006
** Average monthly unique visitors up 12% to approximately 900,000 from 4Q 2006

** Board of directors approved plan to repurchase up to $50 million worth of stock

Fiscal 2007 Highlights

** Sales up 46% to $70.7 million from $48.4 million in fiscal 2006
** Cost of sales
** EBITDA up 46% to $34 million from $23.2 million in fiscal 2006

** Net income $21.2 million ($0.52 per share) from $15.5 million ($0.40 per share) in fiscal 2006
** Profit margin 29.87% from 32.01% in fiscal 2006
** Diluted share count 40,672,000

** Cash flow from operating activities $31.6 million from $23.21 million in fiscal 2006
** Cash flow from investing activities -$20.13 million from -$665K in fiscal 2006
** Cash flow from financing activities $7.3 million from $44.49 million in fiscal 2006

2008 Outlook

For 1Q 2008, expecting:

** $20.1 million to $20.3 million in revenue
** EBITDA of $8.9 million to $9.1 million
** Diluted EPS of $0.11 to $0.12
** Effective tax rate of 41%

For fiscal 2008, expecting:

** $84 million to $86 million in revenue
** EBITDA of $37 million to $39 million
** Diluted EPS of $0.45 to $0.48
** Effective tax rate of 41%

Press Release
http://investor.loopnet.com/releasedetail.cfm?ReleaseID=292168

Analysts were on average expecting an EPS of $0.12 on sales of $19.14 million. LoopNet managed to beat both of these estimates, yet one might ask; why is the stock down more than 5% in after-hours? For one thing, the market is extremely jittery right now and LoopNet does have a pretty high price tag on it in an industry that isn't exactly "hot". While this could be the reason, it is most likely due to the estimates LoopNet provided in the release. Analysts are currently expecting an EPS of $0.14 on sales of $20.17 million, while the company put out an EPS estimate of $0.11 to $0.12. LoopNet's sales estimate is slightly above what analysts are expecting, so now the market knows that margins are contracting slightly faster than most were expecting. Of course, LoopNet may report better results but given the nature of the real estate market right now I don't think that's too safe a thing to count on. But what is probably especially disappointing to Wall Street is the fiscal 2008 estimates. The Street was expecting an EPS of $0.62 on sales of $90.21 million. LoopNet's projections are a decent amount lower than what the Street was hoping for. So, the stock likely won't be seeing too much upward momentum anytime real soon, but timing the market is certainly not my specialty and I won't try to do that. But given the current environment, I'm not expecting much in the way of upside with LoopNet.

However, even with the souring real estate/housing market, it's important to realize LoopNet's financial strength. The company's cash flow production more than doubled this quarter year-over-year, the company has a sparkling clean balance sheet that is getting strong every quarter, and even though margins have been contracting they are still quite impressive. The company saw some nice growth in members and overall seems to be expanding nicely given the environment of everything. In all likelihood, the real estate market will face more pressure in the coming months and possibly this whole year. While LoopNet won't be having the easiest of times, the company is in strong financial shape and will be able to get through the storm. To say the least, I remain confident in the company's future. Management is experienced and has been through some rough times before, and this time they have a stronger balance sheet and a business producing great cash flow.

What's especially interesting is the $50 million share buyback that the board of directors approved. The company has never repurchased a significant amount of stock (if ever), so I think it will be an important thing to keep an eye on. With the stock already struggling somewhat, I'm curious to see how quickly management goes with the program. Insiders already own a strong 37.8% of all shares outstanding, so if the company also starts to purchase shares in the coming quarters it will certainly be interesting. I have no doubt about the strength and long-term prospects of this business, and I have confidence in this management team to carry the company through tough times. If the stock gets slammed a decent amount, I will definitely be tempted to add to my position. I'll probably wait until later this year before seriously considering that decision just to see where the real estate market progresses.

David K
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