Description
Realpages (RP) is an absolute joke of a stock that should be shorted aggressively. They make software that allows apartment building owners to manage their properties. While they have assembled a good software offering through a roll-up strategy, it is not rocket science, and the market is not growing very quickly. For 2010, after backing out acquisitions, I calculate that the organic revenue growth was around 7%, which is shockingly low considering how difficult 2009 was for most companies. Yet, if we look at after-tax ebitda-capex, and do not strip out stock compensation, this company is valued at 250x earnings. The company generates no free cashflow as it is a serial acquirer. In addition, I believe that the company already has roughly two thirds of its total addressable market, making future growth more difficult to achieve. It has real and able competitors, and large customers who have significant bargaining power.
Here are my assumptions for the market size:
| |
|
|
|
RP |
implied |
|
|
| |
|
units |
addressable |
share |
units |
current |
upside |
| multifamily conventional |
10.0 |
75% |
75% |
5.63 |
3.85 |
1.78 |
| multifamily affordable |
7.0 |
40% |
50% |
1.40 |
0.85 |
0.55 |
| single family |
21.9 |
25% |
20% |
1.10 |
0.50 |
0.60 |
| total units |
8.12 |
|
|
|
5.20 |
2.92 |
| revs/unit |
|
40 |
|
|
|
|
|
| potential revenues |
324.8 |
|
|
|
|
|
At this revenue level, I think a best-case scenario is $1 per share, though note that this assumes significant operating leverage across all expense items.
Here is my calculation for organic growth:
2010 revenues 175.0
From eRei 2.5
From domin8 12.8
From level 4.0
2010 organic revs 155.7
2009 revenues 140.9
Full year of evergreen .4
Full year of AL wizard 1.2
Full year of propertyware 3.0
2009 pro forma revs 145.5
Implied growth 6.9%
In addition, the company tends to pay 60% of total revenues, or 150% of "on demand" revenues, for their acquisitions. While this means that acquisitions are very accretive, it also calls into question a 10x revenue multiple for the rolled up business, 15x what they are paying.
Finally, this business came public in august at $11 a share. They waived the lock-up to do a secondary in early December at $25.75, mostly secondary shares. There is still a significant amount of stock to be sold by the venture partners.
This stock is the posterchild for insane valuations and year-end portfolio window dressing.
Catalyst
reality sets int
competition
tertiary stock offering