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Market Leader revenue rises for 5th straight quarter

Keller Williams deal, ActiveRain expected to drive growth

Online marketing and "software as a service" company Market Leader Inc. posted a $4.3 million net loss during the first quarter, even as revenue grew by 25 percent from a year ago, to $7.2 million.

Market Leader — which closed out 2010 with a $14.3 million loss for the year — is transitioning from selling leads generated by sites like to providing customized websites and tools for agents and brokers.

The company said in a regulatory filing Tuesday that revenue from its software-as-a-service products was up 61 percent from a year ago during the first quarter, and that the company has seen five consecutive quarters of revenue growth.

That’s due in part to the fact that Market Leader is now including revenue and expenses generated by real estate blogging network ActiveRain in its results, after becoming the majority stakeholder in the company in September.

Before paying $450,000 to boost its ownership of ActiveRain’s outstanding voting stock from 34 percent to 51 percent, Market Leader treated its stake in ActiveRain as an equity investment in its financial disclosures.

Although most of ActiveRain’s 200,000 users have free memberships, more than 5,000 customers use the company’s subscription-based blogging syndication software services, Market Leader said in its most recent annual report to investors. Active Rain generated about $681,000 in revenue in the fourth quarter of 2010.

Looking ahead, Market Leader CEO Ian Morris said Tuesday he expects even stronger revenue growth and diminishing losses in the months ahead, thanks in part to the five-year agreement the company signed with Keller Williams Realty to provide the lead management, contact management and marketing design components of Keller Williams’ new eEdge platform.

Market Leader had previously disclosed that the company will receive a minimum of $10 million from Keller Williams during the initial five-year term of the eEdge agreement. The company expects to generate additional revenue by "upselling" premium software and services to nearly 80,000 Keller Williams agents.

Keller Williams agents pay the franchise $15 a month for eEdge, and can choose to subscribe to a Market Leader Professional Edition with additional capabilities for $99 a month.

The eEdge payments and potential upselling "is expected to begin to significantly contribute to revenue growth" in the second half of 2011, the company said in its annual report.

Morris said Market Leader added nearly 200 new broker customers during the first quarter.

Company officials say customer acquisition is a key to becoming profitable, and that in 2010 Market Leader expanded its marketing programs through leading real estate franchise networks.

Market Leader generates revenue by charging one-time setup fees and monthly fees for services, including personalized websites, customer relationship management (CRM) tools, marketing materials, training and support.

The significant majority of new brokerage customers signed in 2010 were responding to offers that waive setup and software-as-a-service fees during a promotional period, Market Leader said in its annual report.

"Initially, the acquisition of these customers has a substantial negative impact on our near term operating results as related expenses exceed the revenue that they contribute," the company said.

The $23.9 million the company spent on sales and marketing in 2010 nearly equaled the $24.4 million in revenue those efforts helped generate. That trend continued in the first quarter, with $7.4 million in sales and marketing exceeding total revenue by $191,000.

Additional expenses for technology and product development ($1.84 million) and general and administrative services ($1.6 million) helped push total first-quarter expenses up 28 percent from a year ago, to $11.7 million.

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