Two things have LOOP down...
1. An anticipated drought in commercial real estate, using residential real estate as the proxy.
2. Fear of a competitor's first half 2008 offering.
Addressing #1: It makes sense to buy a great business model when it's market is having trouble. There is no doubt that risk exists in commercial RE for the forseeable future. However, this effect will be mitigated by LOOP's continued penetration of offline advertising. Furthermore, LOOP is currently without a competitor of any significant magnitude. Much like EBAY, LOOP's primary competitors are newspapers and the rolodexes of commercial real estate brokers. As LOOP improves the efficiency of this market, in terms of the time it takes to close a lease or sale of commercial property, the service will become more valuable to the community. Thus, LOOP will continue to be able to raise prices, and deservedly so since it is making brokers and commercial RE players more efficient. The potential drop in commercial RE is "in the price" of LOOP, which now trades at what I think will be less than 10x 2010 earnings for a superior business.
Addressing #2: LOOP's competitor is trying for the 3rd time since 2000 to compete, but it faces the same hurdles that EBAY competitors have-- no traffic. I really don't see how this hurdle is overcome-- as EBAY's auctions continue to grow and generate massive cashflow, even with many large players competing (YHOO, AMZN, OSTK, etc...), and raising prices along the way! Fast fwd one year from today, and LOOP will still be #1 in it's market, no matter what price they are charging. Lastly, no competitor can really beat them, since they offer the base product FOR FREE. You may buy or sell commercial RE on LoopNet.com for free. It is only if a customer wants higher exposure, or better searching ability when money is charged. As Google has proved, it's tough to displace a product that's free (search, email, apps, etc...)
Look for LOOP to emerge from the current real estate crises a huge winner.
$13.64 (12/17/07)
