Last December of last year, I pondered the future of MOVE, the leader in online real estate in the US.
A quick recap: The company does around $300m in revenue per year, but growth is flat. It’s cashflow is positive but barely since they are investing a lot into a new office in the bay area and new people. They have new management who are finally making progress in fixing the core real estate search experience and are on the right track.
The most startling thing about the company is the valuation. Last December when I said the stock would go to double digits it was worth approximately $400m. Now it’s worth around $500m today. Because I have $0 skin in the game, that is a healthy 20% gain on my $0 bringing my total invested amount in the company to $0, an excellent return by any standards in today’s environment.
But with so much cash (well cash + auction rate securities of nearly $200m), the company still has a puzzling valuation when compared to private companies like Zillow or even Trulia.
Before we dig into the quarterly earnings, it seems that something is about to happen, and about to happen soon. Investor David Nierenberg has significantly boosted his stake in the company to a point where he now owns over 13%. He has bought around 5m shares in the past few weeks or another 3.25% of the company. I couldn’t find much about him other than he fancies himself as a mini-Buffet for micro-cap stocks.
Now to the company. Although revenue is flat, the agents who are advertising on the site are starting to show weakness. The weakness is first manifested in deferred revenue since they pay on an annual subscription basis that is then amortized over twelve months. This from the transcript:
“On our balance sheet you will note deferred revenue though up slightly from year end has declined compared to the first quarter of last year. This is largely a result of our continued growth in broker advertisers at the same time we experienced a slight decline in our individual agent business. Individual agents generally pay for their annual subscription up front so that payment shows up in deferred revenue and we recognize the revenue ratably over the 12-month contract. In contrast most of our broker company advertisers pay on a monthly basis which has no effect on deferred revenue.”
One of the company’s bedrocks has been it’s huge lead in traffic and engagement, since they are really the only site out there with comprehensive listings on a national scale. But curiously:
“We also made the decision to spend as I mentioned about $800,000 in maintaining our traffic position”
For some reason they also spent $800,000 in legal costs related to ‘defending patents’ which seems like a huge amount of money for a company this size.
Because of their core position in the industry, the fact that even though real estate classifieds in newspapers are off 20%+ year over year MOVE is holding it’s ground and they seem like they have more lardo than a David Chang-served pig in their cost base, one thing is becoming increasingly likely: a takeover or take-private transaction now the company has two investors, Elevation Partners and David Nierenberg, breathing down their neck.
