Move, Inc. Posts Solid Quarter, But GAAP Profitability Now Looks Like a 2007 Story

Caris & Company analyst Tim Boyd addresses clients on Move, Inc.'s (MOVE) recent June-ending quarter. His note follows:

MOVE reported an In-Line June quarter

– Revenues of $73.9MM and $0.01 in GAAP EPS both came in slightly above Street consensus estimates of $72.4MM and $0.00, respectively.

A solid quarter… MOVE saw continued strength in its core Realtor.com business; management noted that it experienced its best quarter in ten years vis-a`-vis acquisition of new customers. This supports our thesis that MOVE could actually benefit from a slowdown in the overall real estate market as more ad dollars seek the higher ROI that online offers. MOVE’s Top Producer and Retail Advertising segments also saw solid growth in the quarter.

…but GAAP profitability now looks like a 2007 story. Management’s guidance for a big increase in stock-based compensation expense in 2H06 ($5MM to $5.5MM in both 3Q06 and 4Q06, double the levels seen in the June quarter) has put MOVE’s chances for a GAAP profitable 2006 at great risk. To wit, we are lowering our 2006 GAAP EPS estimate from $0.02 to ($0.01). We continue to view MOVE as a “show me” stock: although the strong expansion in the EBITDA margin demonstrates MOVE’s great long-term potential, we believe investors should wait on consistent GAAP profitability before buying the shares.

We are reducing our 2006 and 2007 GAAP EPS estimates to reflect management’s guidance for higher stock-based compensation expenses. Our revenue estimates remain virtually unchanged.

In terms of the stock, we expect the shares to remain range-bound (and volatile) over the near term. MOVE shares barely reacted to yesterday’s earnings release – we saw only one trade print during the aftermarket session. It appears that, at the margin, the market remains unsure what to do with the shares – at least over the near-term. Our advice? Sit tight until more visibility on the success of all the company’s recent investments is available.

In terms of valuation, we see current levels as an accurate reflection of MOVE’s risk/reward profile. Although Caris & Company does not set official price targets, we do employ a P/E and EV/EBITDA framework to determine potential valuation ranges. We apply a 25x multiple (0.9x our long-term growth assumption of 28%) to our 2007 pro forma EPS estimate of $0.20 to arrive at a potential valuation of $4.86. We apply an 19x multiple (0.6x our long-term growth assumption of 35%) to our 2007 EBITDA per share estimate of $0.24 to arrive at a potential valuation of $4.74.

We reiterate our 3*/Average rating on MOVE shares. The company is making admirable progress; we continue to await consistent GAAP profitability before getting more positive on the shares.

MOVE 1-yr chart:

For more on MOVE's most recent quarter, read its conference call transcript.