Bronte Media

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.

From Joel Spolksy on Microsoft running down the ’synchronization’ rabbit hole once more and all the other firms with their head in ‘the cloud’:

“When did the first sync web sites start coming out? 1999? There were a million versions. xdrive, mydrive, idrive, youdrive, wealldrive for ice cream.”

The WSJ reports in brief:

“Accel Partners, a venture-capital firm, has hired a new investing partner from rival Sequoia Capital. Sequoia partner Sameer Ghandi, 42 years old, is joining Accel to beef up its Internet and software practice, said Accel partner Theresia Gouw Ranzetta. During his 10 years at Sequoia Mr. Ghandi made many high-profile investments as Sequoia aggressively went after hot Internet start-ups. A Sequoia spokesman didn’t respond to requests for comment.”

That’s interesting in my neck of the woods as Gouw Ranzetta lead Trulia’s series A round, and Ghandi lead the company’s series B round. I’m sure the move will make for some scintilating ice-breaker chat at upcoming Trulia board meetings for whomever the new Sequoia partner to join Trulia’s board is.

Todd Vernon, CEO of Lijit, has an excellent segmentation of the different types of angel investors; breaking them down into family, relationship, idea and once removed angels. Required reading for any startup founder.

Although by night I make uninvited but exceedingly sharp predictions about the online ad industry and generally pat myself on the back, by day I run a company called Homethinking.com. Well, today we launched a Mortgage section that allows home owners to see actual transactional data on mortgage lenders.

Why would the public want to browse through 33 million mortgage records? Well if you are refinancing your mortgage you can see who the leading lender by market share is. If you are considering buying a house in Miami, Florida for instance, you could see that it had one of the highest subprime loan rates in the country in 2006:

Why is 2006 important? Many of the subprime loans have low introductory rates that reset usually on a 2 year timeline (i.e. this year). Many home owners had hoped their homes would have appreciated in value so that rather than paying the high interest rate they reset to, they could simply refinance and get a more traditional mortgage because they had built home equity. Zillow came out with some great data on how that’s turning out.

Even though prices in places like Miami and Vegas have been plummeting you can see from the mortgage data in places like Miami, there will still likely be a lot of pain. Florida has a lot of investment properties (that is the homes are bought with the intention to rent out or as a holiday home as well) which adds another dimension you can see through the data.

So you can put together crumbs and see that real estate markets aren’t going up in areas like Miami anytime soon. p.s. another fantastic resource for real-time market pricing is Altos Research where you can chart the decline and mayhem week to week.

Launching a mortgage site in May of 2008 may seem like a stupendously dumb idea. But the short term has very little to do with it. Yes mortgage lead prices have plummeted (and so to the eCPM of direct response inclined mortgage sites). And half the industry that partied drunk on high fees on exotic mortgages are now dead. But I am building for the longer term where the site can become valuable to users and that will take years. Here are a few short ideas of what is next on the company blog.

Also, as a blogger you can embed any of the charts on the site into blog posts much like you can with site traffic data at places like compete.com. Hopefully the data will act as a kind of conversation starter to draw out informed analysis of the market.

Finally, I am also fired up about another project we are working on that will help people choose where to live that we will be launching in a few months (fingers crossed).

Enjoy!

From the storied pages of this here blog on Monday, February 4th:
[My prediction]: “Yahoo finally strikes a deal with Google and kills Panama. Focuses on Right Media/Blue Lithium and making a go of it in remnant display. Enough to stave off Microsoft and keep Wall Street at bay for 1 year.

Time Warner, who actually wants to sell a large Internet unit, sells AOL to Microsoft. Any deal is a good deal once Microsoft is left without a bride and the spotlight on their meager Internet operations grows ever brighter. Or Microsoft acquires AOL *and* ASK. Barry is under fire from Malone and if he can flip ASK at a significant premium ($3-5bn) he can use that as a bargaining chip.”

Honestly, how about that Scevak guy?

Seriously, this is not a ‘victory’ for Yahoo and all it does it buy it a little more time to continue along its current lazied way (save for the Google deal which it should have done years ago). My guess: a year at best and then we are back at the negotiating table but this time with Yahoo driving the interest in consumating a transaction.

And what should Microsoft do with $50 billion? Well they certainly shouldn’t buy Viacom with it.

What they should do is build up a $50bn position in GOOG (a shame they couldn’t have done that in March).

I still believe though, that what they will do is buy AOL and boast about having ‘reach’ at their ad networks or some other stupid irrelevant leadership position.

From Bill Burnham’s excellent dissection of how Infospace management bathed themselves in riches through a special dividend:

“As for shareholders, they are now left with a business whose only significant asset is a website called Dog Pile. If you’re like me, the image that pops into your mind when you hear the term “Dog Pile” isn’t exactly a pile of money, which at least strikes me as poetic justice if nothing else.”

Long time readers of this blog will know that I had been down on AOL because I thought that the ending of the Univeristy of Phoenix deal ($215m last year) would be a huge hit for ad.com and that’s why AOL’s ad revenue would be hurt. That wasn’t the case.

Ad.com continued its meteoric rise: Third-party Network revenue rose 25% to $188m. Now to be fair, Ad.com itself was flat and the rise was attributable to the grab bag of ad-networks the company acquired last year but flat is a great result nonetheless when this big loss was factored in.

So what went wrong? Primarily display advertising on AOL’s owned and operated sites fell 18% from $232m to $191m.

John Martin Jr said this on the call:
“based on our internal estimates, we think total page views were 6% higher than last year’s first quarter”

Firstly, you think?!

Secondly, from that we can deduce that AOL’s eCPM on its display properties plummeted 23% year over year. Even in the face of page views transitioning to more vertically focused properties (vertical page views were up 22% year over year).

This is quite simply incredulous. No wonder they are trying to offload this thing to Yahoo (or Microsoft if Microsoft’s bid for Yahoo ultimately fails).

eBay’s complaint against craigslist is now public (save for some of the more juicier details like the percentage ownership stakes of Craig and Jim).

The court of public opinion had already been made up before any of these details came to light: big money-hungry corporation chases little community company trying to make this evil thing called profit. Case closed.

But the complaint reveals some very nefarious corporate governance and lessons in treating minority shareholders that may best be audibly encapsulated by Dave McCullen’s song ‘I just like to call you my bitch’.

What exactly happened?

Craig and Jim had their feelings hurt when eBay decided to launch Kijiji in the US last year and they said that a clause of the shareholder agreement had been triggered whereby eBay was now competing with Craigslist. Why the US launch triggered such feelings is unknown: eBay’s main site ebay.com competes with craigslist and eBay has owned foreign classifieds sites like Gumtree in the UK and other classifieds sites in the Netherlands for years (both have craigslist sites).

What then happened, eBay alleges, is a series of self-dealing transactions.

eBay owned a little over 28%. To get eBay’s ownership below 25% (whereby they weren’t able to elect a director), Jim and Craig put together a stock rights issue. In exchange for a 17% bump in ownership (1 share for every 5 owned), each person had to agree not to sell to anyone but the other shareholders or the company first (right of refusal). Oh and for Jim and Craig, they could pass their shares onto heirs, trusts or charities, so they weren’t really agreeing to the clause anyway.

Not surprisingly, eBay said no and Craig and Jim said yes.

Then Craig and Jim enacted a poison pill whereby if another entity did buy a stake of more than 15% then a can of cheap stock whoop ass would be unleashed.

You can laugh at Alley Insider’s $5bn valuation of the company all you want, but the reality is that the valuation is in that ballpark.

If we say $3bn, then the 3.55% dillution that eBay took by not agreeing to the onerous first right of refusal is $106m. Not chump change.

eBay is in a pickle in that Delaware has 99% of America’s most valuable companies registered there for a reason: it’s company friendly. But the actions taken by Jim and Craig seem particularly aggressive and this will be interesting to watch.

Whatever the outcome, this is a lesson in minority stockholder horror shows and a reason why VCs and Angel investors must get preference shares in startups.

One of the fun byproducts of living in New York is running into the familiar streets and locations that have appeared on movies and television series. My apartment, for instance, is around the corner from where Miranda proposed to Steve on Sex and the City. That level of disclosure may be troubling to you and if so I apologize.

Anyhoo, here is a fascinating history of video games that have been based in New York. I haven’t seen my apartment near any of them unfortunately.