Message Font: Serif | Sans-Serif
No. of Recommendations: 3
LoopNet is a loser. Many fools cheer-lead this stock without sufficient analysis of the company’s weaknesses, missteps, and threats. The company, I believe, has an unwarranted CAPS Rating of 4 out of 5!

LoopNet raised $50 million in expensive convertible preferred stock to "accelerate our growth strategy", according to the company. I challenge anyone to suggest a meaningful growth strategy or company LoopNet could buy to accelerate their growth strategy?

LoopNet has publically stated that they are investing in Xceligent. Here is a quote from CEO Rich Boyle on LoopNet's Q3 2008 earnings call: “Another area of investment has been with our partner, Xceligent. We have continued to make incremental investments in their business.”

So, LoopNet could buy Xceligent for maybe $15 million and invest $35 million to try to compete in information services with CoStar. This is not a growth strategy. Xceligent is a loser of a business model and CoStar has spent 20 years and more than $1 billion researching commercial real estate to develop their market-leading database. It would cost LoopNet tens -- if not hundreds -- of millions of dollars and years of work to go head-to-head with CoStar. Xceligent's loser of a business model utilizes a board system, whereby firms in an MSA agree to share data, and Xceligent provides minimal quality checks and software. Firms participating in the board systems do not share data efficiently or effectively, and, therefore, Xceligent’s data is often unreliable and incomplete.

LoopNet could try to aggregate more listings from NAR by partnering with Partnering with / NAR to aggregate residential listings is not a growth strategy.

LoopNet could try to buy an analytics company, like REIS, for $50 million. Although, REIS management turned down an offer by CoStar in August 2008 valuing the company around $100 million. And, combining REIS and LOOP does not accelerate any clear growth strategy. I also question if there would be any meaningful synergies.

I believe the LoopNet is preparing for severe weaknesses in its business and raised the expensive capital to help weather the CRE cycle and thwart competitive threats. Some fools disagree: However, CoStar just released a new individual subscription option that appears to go directly after LoopNet's market share.

The threat of CoStar eating LoopNet’s lunch is real. 42% of LoopNet's subscribers pay to search, whereas CoStar does not charge to search. LoopNet’s activity-based pricing (implemented in Q4 2007 and completed in Q4 2008) has ticked off listers because the structure gouges on price at a time when listers are already suffering. Without listers generating content for LoopNet, LoopNet is no more than a Craigslist for a ghost town. On the other hand, CoStar’s competing product, Showcase, does not rely on user generated listings. CoStar proactively researches listings and can turn a listing from their information platform into a Showcase listing at a customer's whim.

In addition, LoopNet was stupid to buy back $55 million in stock at around $10-12 a share, so the company decided to dilute shareholders through an expensive convertible preferred stock deal. Existing insiders (with board seats) Trinity Ventures and Rustic Canyon Partners benefited from a deal that did not require the approval of other shareholders. (Calera Capital, not a previous shareholder, also participated in the deal.) Other shareholders were diluted!

Don't be a fool. LoopNet is a loser and doesn't have a good plan to accelerate their growth strategy.
Print the post  


Live Video Event Monday!
The GP team is hosting a live video event on Monday at 4 p.m. ET. Don't worry if you can't make it — we'll have a replay and a transcript. Click for more!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.