Loopnet, The Only IPO On Deck This Week (LOOP)

It is a quiet week for IPOs this week, with the only IPO, Loopnet (LOOP), scheduled to begin trading on Wednesday. Red Herring notes that after a market bottom, it usually takes six weeks for the IPO market to pick up. Last year, for example, the market dropped 11.5% from January 3rd to its April 28th trough. At that point, 46 IPOs had priced YTD but only two hit the market in the last week of April. Six weeks later, the markets picked up and 25 deals were priced. Looks anecdotal to me.

Highlights from LOOP's filing:

Offering: 6 million shares at offering range of $11-13. Four million shares are being offered by the company; the remainder by selling shareholders. At midrange, the total raise would be $72 million.

Underwriters: Credit Suisse is the lead underwriter.

Business (from LOOP's prospectus):

We are a leading online marketplace for commercial real estate in the United States, based on the number of monthly unique visitors to our marketplace, which averaged approximately 500,000 unique visitors per month during 2005 and over 590,000 per month during the first three months of 2006, as reported by ComScore/MediaMetrix. ComScore/ MediaMetrix defines a unique visitor as an individual who visited any content of a website, a category, a channel, or an application.

Our online marketplace, available at www.LoopNet.com, enables commercial real estate agents, working on behalf of property owners and landlords, to list properties for sale or for lease by submitting detailed property listing information in order to find a buyer or tenant. Commercial real estate brokers, agents, buyers and tenants use the LoopNet online marketplace to search for available property listings that meet their commercial real estate criteria. By connecting the sources of commercial real estate supply and demand in an efficient manner, we believe that LoopNet enables commercial real estate participants to initiate and complete more transactions more cost-effectively than through other means.

As of March 31, 2006, the LoopNet online marketplace contained approximately 360,000 listings for more than $296 billion of property available for sale and more than 2.8 billion square feet of property available for lease.

Financial Highlights:

2005 revenues of $31 million; cash flow from operations of $14.5 million. This represents a close to 3X revenue uptick over two years and close to 5 fold operating cash flow growth in the same period.

First quarter of 2006 revenues of $10.2 million and cash flow from operations of $5.3 million. In the same period last year, first quarter revenue was $6.2 million and cash flow from operations $2.6 million.

Source of revenues: Primarily via premium membership fees (80% of 2005 revenues); the remainder originates from advertising, product license fees, and subscription fees from BizBuySell marketplace.

Opinion: Forbes' Scott Reeves compellingly argues that Loopnet is at the height of its hype cycle; while IPO investors could do well, this is by no means a long term hold:

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.