Nifty idea. Great promise. Low barriers to entry. Fierce competition. Heavy losses. Uncertain future.
That about sums up the flight path of most emerging Internet companies, and LoopNet is no exception, although it does come with recent profits--a rare find during the Internet mania of the 1990s.
However, the provider of online commercial real estate listings offers nothing others can't do. Worse, LoopNet now may be at or near the top of its game as larger, better capitalized companies move into the sector. Investors who quickly move in and out of this stock have a shot at making money.
LoopNet provides nationwide online listings for commercial properties at LoopNet.com. On March 31, LoopNet had 360,000 listings for about 2.8 billion square feet of commercial property valued at an estimated $296 billion.
The basic service is free. Users must register and provide routine contact information, including a working e-mail address. On March 31, LoopNet had 1.2 million registered users and 64,000 premium members. Premium membership costs $49.95 per month, and paying customers generated about 80% of the company's revenue in 2005.
The company says it attracted an average of 590,000 unique visitors per month in the first quarter of 2006. Future growth depends on converting the increasing numbers of free users to paying members. So far, the conversion and cancellation rates are about a wash.
About 5% of free members become paying customers each month, but this is offset by paid membership cancellations of 3% to 5% each month. The constant churn means future growth is uncertain--and expensive.
In December 2005, about 30% of LoopNet's premium members were in California and 10% were in Florida. A downturn in those markets would hammer the company's income.
Still, the potential market is huge.
CB Richard Ellis, a real estate company with about 350 offices in 58 countries, says the U.S. commercial real estate industry totaled about $23 billion in services in 2004. The Association of Real Estate License Law Officials says there are about 2.6 million registered commercial and residential real estate sales representatives in the U.S.
LoopNet continues to roll out new fee-based products to serve the market. In March, the company launched a service listing recent sales in 650 U.S. cities and 220 countries for $1.95 per transaction or $29.95 a month.
In October 2004, the company acquired BizBuySell, an online listing of operating businesses for sale. Sellers pay $39.95 a month to list their business, and buyers search the listings for free. On March 31, BizBuySell had about 38,000 listings. In 2002, the Small Business Administration estimated that there were about 23.3 million businesses in the United States.
LoopNet has shown steady revenue growth. For the three months ending March 31, 2006, the company reported net income of nearly $3 million on revenue of $10.2 million, compared with net income of $1.9 million on revenue of $6.2 million for the same period a year ago.
The company was founded in 1997 and lost money through the first quarter of 2003. On March 31, it had an accumulated deficit of $19.6 million.
While the national commercial real estate market is highly fragmented, a race is on to build a strong brand name and increase market share in the listings game. LoopNet competes in a sector with few barriers to entry, and major companies are muscling up to grab a piece of the action.
The competition is formidable. Others active in the sector include
LoopNet, based in San Francisco, plans to offer 6 million shares, including 2 million by current stockholders, at $11 to $13 each through underwriters led by Credit Suisse. The proposed Nasdaq symbol is LOOP. The deal is expected to be priced the week of June 6.
The company expects to raise about $42.1 million in the IPO. It will receive nothing from the sale of shares by current shareholders. LoopNet has no specific plan for the use of the net proceeds other than to increase working capital and create a public market for its stock.
LoopNet has built a promising company. Nevertheless, the future is uncertain, as bigger companies with greater resources and name recognition move into the field. Ebay and Yahoo! recently announced a partnership to take on Google. The deal will bring text-based advertising to eBay from Yahoo!, and Yahoo! will incorporate eBay's PayPal payment system. Craigslist is everywhere on the lower end of the market. The industry is changing quickly, and competitors could outpace LoopNet despite its recent success.
Current shareholders offering 2 million shares in the deal therefore may be smart to cash out now. LoopNet's IPO will likely show a little life in early trading, but like most emerging Internet companies, the stock is far from a buy and hold.
Coming To Wall Street
Company And Proposed Ticker |
Headquarters |
Sector |
Number Of Shares (millions) |
Price Range |
Lead Underwriter |
LoopNet (nasdaq: LOOP) |
San Francisco |
Online listings of commercial real estate |
6 |
$11-$13 |
Credit Suisse |
Source: Redherring.com