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Merriman Capital: SRER Increasing Offerings; Maintaining Spec Buy with New Price Target of 39 Cents

SearchCore, Inc. ($SRER), an Internet marketing and services organization (MSO), connects consumers with products, services, and social resources through online web destinations, announced the

SearchCore, Inc. ($SRER), an Internet marketing and services organization (MSO), connects consumers with products, services, and social resources through online web destinations, announced the addition of a new business segment. The company is adding a subsidiary focused on monetizing leads through in the form of home sales. We view this play favorably and expect it to be accretive to the company's business model, substantially increase sales and potentially result in profitability. Therefore, we are maintaining our Speculative Buy while increasing our PT to 39 cents from 37 cents previously. Our new PT is based on a 3-times multiple of our FY14 revenue estimate of $5.4 million compared to a 4-times sales multiple to our previous revenue estimate of $3.8 million.


Investment Summary

Earlier this week SRER announced the addition of a new business segment essentially changing their operating model from a standalone finder site platform to one that leverages its online presence/partnerships to distribute manufactured homes in under penetrated regions. We were able to talk to management about the recent news and were also able to get an update on their legacy business. The following is our take on the aforementioned events:

  • The formation of Wisdom Homes Of America, Inc. Due to SRER's first to market finder site within the manufactured homes industry, strong relationships with home manufacturers, ability to see where lead generations are being developed throughout the U.S. and easy access to advertisements/promotions placements, SRER created Wisdom Homes Of America, Inc., a subsidiary with brick-and-mortar retail centers geared towards selling manufactured homes through various underserviced locations in the heartland of the U.S. The company intends on opening its first location in February and expects more retail centers throughout 2014 and 2015. Traditionally dealers sell 4-5 homes per month which range from $60,000 to $120,000 and are able to generate GMs in the ~20%-30% range. Operating expenses for this business model are low with the majority of costs tied to overhead expenses related to leasing a retail location and paying sales rep commissions. As is typical with this industry, the company will have to seek out "flooring" financing necessary to obtain various model homes from manufacturers and host them at their facility, resulting in increased interest expenses going forward. If the company is able to hit the industry averages they should be able to increase their 3Q13 quarterly top line run rate by as much as 6x with just one store opening. Furthermore, SRER is bringing on Brent Nelms, a 30 year veteran in the manufactured homes industry, to run this new division and we believe his expertise and industry contacts should enable the company to expedite the process and streamline the logistics behind this new division. In addition, Mr. Nelms previously structured and oversaw 33 manufactured home retail sales centers generating over $100 million in annual revenue. We view this new business segment as a natural progression for the company, leveraging their existing data analytics and online infrastructure to monetize consumers through different verticals and expect this change should help grow their business model while leading to share appreciation.

Company Description

Headquartered in Lake Forest, California, SearchCore provides customized "finder" sites for various niche industries. The company's platform increases consumer awareness for businesses listed within its platform while creating an online meeting place for like-minded individuals.

Andrew D'Silva, Analyst
(415) 568-3927
[email protected]

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