San Francisco-based LoopNet Inc.,, a leading online commercial real estate marketplace, is making another strategic move to grow the company with the acquisition of REApplications, a privately-held provider of on-demand brokerage operations software.
LoopNet announced Tuesday that it’s paying $9.4 million for REApplications, an eight-year-old San Diego-based company that develops software-as-a-service for the real estate industry. LoopNet CEO Richard Boyle describes REApplications as a “strong, client-centric, innovative business” that has focused on building “value and relationships” with its clients.
REApplications provides a comprehensive, integrated suite of commercial brokerage automation software that enables executives, professionals and staff to manage property data and market research, collaborate with clients on transactions, manage prospects and client relationships and perform other commercial brokerage operations. LoopNet plans to operate REApplications as a wholly-owned subsidiary and reports the existing senior operating executives of REApplications will all remain post-acquisition.
The purchase is the most recent of LoopNet’s efforts to weather a challenging real estate environment that has robbed its stock of some of its luster. LoopNet announced earlier this month that it was expanding exposure for its showcase listings, and instituted next-generation software on its site in March.
Founded in 1995 and IPO’d in 2006, LoopNet features more than $500 billion in properties for sale and 4.3 billion square feet of space for lease. However, its revenue growth is slowing and analysts expect relatively flat earnings for the next two years.
In February, the company reported fourth quarter revenue of $19.6 million, with EPS of 14 cents, beating the Street estimates of $19.4 million and 12 cents. And it expects first quarter revenue of $20.1 million to $20.3 million, with EPS of 11 cents to 12 cents a share, including 2 cents in stock-based compensation expense, exceeding analysts’ projections of $20.2 million and 11 cents.
However, LoopNet expects full year revenue of $84 million to $86 million, less than the $90.2 million analysts had expected. Based on that projection, Cantor Fitzgerald lowered its price target on LoopNet from $29 to $18 a share. More recently, Zacks Equity Research initiated coverage of LOOP with a sell rating and a price target of $11.00 a share.
In an April 3 report, Zacks cites concerns about “a challenging near-term operating environment” that it expects to curtail share price appreciation. “Continuing macro-economic challenges will likely put stress on the commercial real estate sector,” it continues, “as slower economic growth combined with tight access to debt capital may limit transaction activity. ”
Analysts describe the acquisition of REApplications as a potentially beneficial long-term strategic move, even though it will have little immediate effect on earnings. Although REApplications has been profitable as a standalone business, LoopNet does not expect an immediate return on its investment. In fact, although it estimates the company will contribute $2.3 million in revenue for the remainder of 2008, the revenue will be offset by various acquisition and integration related expenses. LoopNet expects the acquisition to be dilutive to 2008 EPS in the range of a loss of $0.02 per share.
Analysts describe the acquisition as a future-focused deal. Steve Weinstein, who follows the firm for Pacific Crest Securities, says LoopNet has broad access to commercial real estate professionals, which it can leverage to market REApplications software. In addition, he explains, LoopNet could benefit by incorporating REApplications in its platform.
REApplications already serves some of the largest commercial brokerage and property valuation firms in North America, including Lee & Associates, Coldwell Banker Commercial, Grubb & Ellis