A Web Network With Deep Pockets

• ByJonathan Heller, RealMoney Contributor
• On 12:14 pm EDT, Wednesday May 13, 2009

As Tim Melvin wisely noted last week, Move Inc., the leading network for online residential real estate advertising and parent company of Realtor.com, is not currently what you would call a great business -- on the surface, anyway. Yet if you drill down, you discover not only opportunity but a great, cash-rich balance sheet.

I first profiled Move back in January after seeing David Nierenberg of D3 Funds, currently the top shareholder at 18.4%, present the idea at the Value Investing Congress in New York. At the time, Move was trading for around $1.60, and that was before the markets really took off. Since then, shares are up about 31%, and the idea seems no less compelling today.

Last week, the company reported first-quarter revenue of $54.9 million, down 10.9% from the same period last year, and a net loss of $10.6 million, vs. a loss of $4.6 million. While both revenue and the bottom line were below consensus forecasts, all in all it was not a bad quarter, and the balance sheet remains solid.

Move ended the quarter with $111.2 million, or 72 cents a share, in cash and $111.8 million, or 72 cents a share, in long-term investments, which in this case are student-loan-backed auction rate securities (ARS). (There was no change in fair value of the ARS portfolio this quarter.) Assuming the ARS are money-good, Move has $1.44 in cash and investments on the books, while the stock trades at $2.10. Backing out the current debt, a line of credit of $64.7 million, that leaves $1.03 per share in net cash and investments. Move also has a convertible preferred issue on the books. For more on that, see my column from January.

There's other potentially good news for Move these days, as the company recently brought in veteran Steve Berkowitz as the company's new CEO in late January. He had been serving on the board. Prior to that, Berkowitz had quite a run at Ask Jeeves, serving as CEO from January 2004 until August 2005, when the company was acquired by IAC/InterActiveCorp. for many times the company's price when Berkowitz first took the helm.

The other potentially good news, as David Nierenberg pointed out at last week's Value Investing Congress West in Pasadena, Calif., is that Move stands to gain advertising share from its main competitor, newspapers. According to Nierenberg, real estate advertising is down 71% from its peak. With newspapers failing left and right, there should be an even greater shift to Internet-based real estate advertising, which happens to be Move's sweet spot.

In my previous Move column, I pointed out one of the negatives of the stock: a large amount of shares outstanding -- $154.2 million as of May 4. On May 4, Nierenberg filed a 13D, asking that Move management consider a five-year policy to reduce shares outstanding by $100 million. Given the current share count, stock options and conversion of the convertible preferred stock, Nierenberg estimated that without an adequate reduction effort, shares out would grow to more than $234 million. We'll see if the board is listening.

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