LoopNet, Inc. (LOOP)

Stay out of the LOOP

Most of LoopNet's year-over-year revenue growth was attributed to price increases. Revenue in Q2 was up 29% year-over-year, and the price of premium membership increased to $62.13, + 21% Y/Y. In Q2 74% of revenue was premium membership revenue. But, price increases initiated in late 2007 (from a change to volume-based pricing) have almost completely propagated through, and will end in the later half of 2008, per management. Management was asked point blank on 1Q08’s conference call: “Any plans for additional price increases or adjustments this year?” CEO Rich Boyle: “No... the pricing model or the pricing engine that's in place is pretty complete for 2008 at this point.” Therefore, revenue growth is decelerating.

LOOP has also taken steps to mask earnings margins by netting stock-based compensation and litigation costs from EBITDA and EPS. And, egregiously in 1Q08, LOOP added litigation costs to its reconciliation of Adjusted EBITDA. Don’t be fooled. LOOP’s year-over-year Adjusted EBITDA does NOT compare. Furthermore, LOOP’s litigation costs are a reoccurring expense and, in my mind, the company has not met the burden of demonstrating the usefulness of excluding it. (See: http://www.sec.gov/divisions/corpfin/faqs/nongaapfaq.htm) What’s next?! LOOP reported a Q2 Adjusted EBITDA Margin (including Equity Comp and Litigation Costs) of 47.3% -- up from 46.5% in Q1. BUT, the company’s Q2 EBITDA Margin (unadjusted) was 35.3% -- DOWN from 37.4% in Q1.

MOREOVER, in Q2 LOOP cleverly began guiding to non-GAAP EPS for CY2008, and did not reaffirm GAAP EPS guidance for CY2008. Management stated on Q1’s call that GAAP EPS for CY2008 would be approximately $0.465. Therefore, at $11.37 LOOP trades at a CY2008 P/E multiple of 24.5. Don’t be fooled by non-GAAP EPS guidance! LOOP does trade at a P/E multiple of 19.3 non-GAAP EPS guidance of $0.59 per share for CY2008, but again non-GAAP EPS excludes pertinent items.

LOOP also trades at a CY2008 EV/EBITDA multiple of 11.3. Or, if you drink management’s wine, they trade at a CY2008 EV/ Adjusted EBITDA multiple of 9.4. I’m not thirsty.

To put a cherry on the top of management’s shenanigans, stock-based compensation was up 72% year-over-year in Q2! Stay out of the LOOP.