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Lofty Valuations in Online Real Estate

Posted on Monday, Jun 30th 2014

Economists believe that the much anticipated US housing market recovery is yet to come. The housing market is continuing its descent even during the busiest season of the year. Sales of previously owned homes registered a decline of 7.5% this March, the slowest pace in the previous 20 months. New home purchases also fell 14.5% over the year in February and applications for mortgages fell 20% over the year.

Zillow’s Financials
Zillow’s first quarter revenues grew 70% over the year to $66.2 million, ahead of the Street’s estimates of $63.2 million. A surprising increase in the paid subscriber base helped them deliver an EPS of $0.02 compared with the Street’s estimated loss of $0.08 per share for the quarter. On a GAAP basis, Zillow reported a loss of $0.16 per share compared with the market’s estimated loss of $0.24 per share.

By segment, real marketplace revenues grew 72% to $53.4 million and mortgage display advertising revenues grew 62% over the year to $12.9 million.

According to comScore, as of March this year, the Zillow–Yahoo real estate network saw unique visitors grow 13% over the year to 53 million monthly unique visitors. Among other metrics, the subscribing real estate agents increased 56% to 53,000. By April, Zillow’s total visitors hit an all-time record of 79 million visitors. Mobile penetration is improving as they reported more than 460 million homes being viewed through mobile devices. Overall, average monthly revenue per subscriber increased from $259 a year ago to $286.

For the current quarter, Zillow projected revenues of $75.5 million-$76.5 million, ahead of the market’s projections of $71.7 million. They expect to end the year with revenues of $304 million-$308 million, compared with the Street’s forecast of $294.8 million.

Zillow’s Product Innovation
Zillow continues to upgrade their products and services and recently added a new feature called the Zestimate forecast. The tool uses Zillow’s proprietary home appraisal formula to forecast what a house will be worth within the year. The forecast tool was launched initially for a listing of 50 million homes and the company plans to roll it out to a bigger share of homes in the country.

Additionally, the company introduced Mortgage Pre-Approval, a tool that provides qualified home shoppers on Zillow with a pre-approval for a mortgage in easy quick steps.

Earlier this month, they also released Coming Soon inventory which is a listing of homes that are not yet on the market, but are expected to be listed within the next 30 days. Buyers can use this listing to initiate discussions with their agents and also get a pre-approved mortgage for the property.

Zillow’s stock is trading at $138.04 with a market capitalization of $5.5 billion. It touched a 52-week high of $141.17 early last week.

Move’s Financials
Move’s (Nasdaq: MOVE) first quarter revenues grew 7% over the year to $58 million with consumer advertising revenues growing 6% to $44.8 million and software and services revenues growing 10% to $13.2 million. EPS for the quarter fell from $0.09 a year ago to $0.02.

During the quarter, the company saw the biggest traffic to which reported nearly 33 million unique visitors.

For the current quarter, Move projected revenues of $61.5-$62.0 million and expect to end the year with $254 million-$258 million.

Move’s Product Innovation
During the quarter, Move also focused on improving their product portfolio. They released a service called Doorsteps’ Swipe, which is a mobile app available on the App Store and features a very simple way for first-time home buyers to search for a home. They also released a resource called Porch Home and Neighborhood Report which is a free resource tool that provides users with information on remodeling and project history of a specific home in a defined neighborhood.

Move’s stock is trading at $14.42 with a market capitalization of $570.7 million. It touched a 52-week high of $18.36 in October 2013.

Trulia’s Financials
Finally, Trulia’s (NYSE:TRLA) first quarter revenues grew 127% over the year to $54.5 million, compared with the Street’s projections of $53.5 million. Loss per share of $0.14 was also short of the market’s projected loss of $0.12 per share.

By segment, Marketplace revenues grew 155% to $45.8 million and Media revenues grew 45% to $8.7 million. During the quarter, monthly unique visitors grew 42% to 44.6 million with mobile visitors growing 68% to 19.0 million. Average monthly revenue per subscriber improved 5% to $196.

For the current quarter, Trulia projected revenues of $61.5 million-$62.5 million, compared with the Street’s estimate of $61 million. Trulia expects to end the year with revenues of $245 million-$248 million, ahead of the market’s estimate of $247.6 million.

Trulia’s Product Upgrades
Like its competitors, Trulia is also investing in product upgrades. During the recent quarter, they released a redesigned mobile app for both iOS- and Android-based devices. The new app lets users have a comprehensive view of a house that they wish to buy in terms of providing them with details on the neighborhood including crime rates, school districts, and comparative prices along with having access to larger and easy to navigate pictures. They also released a new search for home buyers looking for new constructions. Trulia’s new construction search provides users with information on community amenities and home design choices and provides improved exposure for their builder partners to market their listings.

Trulia’s stock is trading at $45.28 with a market capitalization of $1.67 billion. It touched a 52-week high of $52.71 in September 2013.

There is a lot of market speculation about consolidation in the online real estate sector. Recent market reports suggest that Move may be bought over by Trulia for an acquisition price of $18.00 per share. Trulia has declined to comment on these reports. There was further speculation on a possible integration of Zillow with Trulia. Both Zillow and Trulia operate on a similar business model and a merger of the two would make sense if one of them starts to see a slowdown in growth. Move, on the other hand, earns more of its revenues from advertising than either Zillow or Trulia and its acquisition may result in additional revenue opportunities for either player.

Zoopla’s Financials
Earlier this month, British property website Zoopla listed on the London Stock Exchange. Zoopla is a property website owned by Daily Mail and General Trust. It has been operating in the UK since 2008 and has seen monthly visits to its site grow 37% this year to nearly 40 million. The company operates on a subscription and advertising revenue model and has a high penetration of nearly 90% amid residential listings by Bristish property agents. For the six months ended March this year, Zoopla saw revenues grow 26% to £38.3 million (~$61 million) with members paying a subscription fee growing 8% to  19,239. Its stock listed at a price of £2.20 (~$3.70 ) a share, translating to a valuation of £920 million (~$1.56 billion).

The property market may not be soaring, but that has not stopped valuations  of online realtors from rising. Not only in the US, but as is evident from Zoopla’s listing, the foreign markets are also witnessing billion dollar valuations for these firms. The rising valuations are all attributed to the growing traffic coming on these websites.

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