3 Real Estate Stocks Fighting for $6 Billion
Last Friday, competition among real estate tech companies heated up. Trulia filed for a $75 million IPO, a sum that could give this website the funding it needs to take on market leader Zillow (NAS: Z) and pound more traditional companies into dust. Trulia's filing allows investors a never-before-seen look into its fundamentals. Let's see whether this company's got what it takes to kill the competition.
Online real estate 101
If you've never heard of Zillow, Trulia, or Move, you're missing out on an emerging sector that could run the real estate market in the next five years. These companies use the Internet as a platform to connect buyers (home buyers or renters) with sellers (home sellers, landlords, or real estate agents) and lenders (banks and mortgage lenders). The company provides each group with all the information they need to make the best possible business transaction, and then provides them with a simple process for making that transaction a reality. For a visual explanation, check out this video.
The numbers that matter
Image is everything, and Trulia's website visits send mixed messages. Although Trulia's unique visitors have tripled in the past three years, Zillow has grown slightly faster and now enjoys almost 10 million more website visits per month than Trulia. Move's (NAS: MOVE) Realtor.com growth looks near horizontal at 28%, compared with Trulia's 69% traffic increase and Zillow's 76% jump.
Source: Author, data from Trulia S-1, Zillow 10-K, realtor.org.
Given what we know about these companies' website visits, their sales growth should come as no surprise. Zillow and Trulia have doubled sales each year for the past three years, but the laws of compounding multiples have Zillow ahead by $20 million in 2011. Although Move has a massive monetary head start on these two startups, it's headed in the opposite direction with falling sales every year.
Source: Author, data from Trulia S-1 and Yahoo! Finance.
The budget line that most impressed me in Trulia's financials was R&D spending. Zillow spent 44% of its revenue on R&D in 2009, but only 18% this past year. Move has consistently tucked away about 15% of its sales into R&D. Trulia, on the other hand, is still pouring funding into R&D and outspent Zillow by $4 million in 2011.
Source: Author, data from Trulia S-1, Zillow 10-K, Move 10-K.
The real estate advertising business is estimated to be valued at $6 billion, and it's unlikely that any one corporation will beat out the rest without some help from outside sources.
In February 2011, Zillow teamed up with Yahoo! (NAS: YHOO) to provide real estate listings through Yahoo! Homes. In addition, Zillow now enjoys exclusive rights to sell real estate agent advertising through Yahoo! Real Estate. Having sealed up a seller deal, Zillow partnered with AOL (NYS: AOL) in October 2011 to expand its lender visibility. Zillow's "Mortgage Marketplace" rates are now displayed on both AOL Real Estate and AOL-owned DailyFinance.
Move's claim to fame is its title as the "official website of the National Association of Realtors." Of course, nobility doesn't always guarantee success (just ask King Louis XVI), so Move is hedging its bets with joint ventures intended to enhance its mortgage and homebuilder services.
For now, Trulia seems to be going solo. Instead of partnering with any larger organizations, the company is trying its hand at grassroots marketing through a dozen or so blogs covering everything from celebrity homes to real estate agent advice columns.
These three players are currently the three musketeers of online real estate, but this lucrative sector will undoubtedly see more competition as it continues to grow. Google (NAS: GOOG) left the sector in February 2011 because of "the proliferation of excellent property-search tools on real estate websites," but I wouldn't be surprised if it came back swinging in the next few years.
I don't see Move as a threat unless it gets serious about makings its larger budget count for something. Trulia's smaller than Zillow, but it's got teeth. It's stepped up its R&D to take back some of Zillow's market share and if it can consistently increase site traffic at a faster rate, it stands to come out ahead. Otherwise, Trulia's piece of the pie will continue to shrink thanks to Zillow's ever-growing network effect.
When Trulia has its IPO, I won't be buying, but I'll be watching. I've made an "underperform" CAPScall for Move and an "outperform" CAPScall for Zillow on my Motley Fool Caps page, but I'm undecided on Trulia's ultimate success or failure.
Beneath it all, each company's success rides on its ability to gather and manage excellent housing data. Data mining is changing the way that companies analyze their business and there's one corporation out there that's miles beyond its competition. The Motley Fool has prepared a special free report outlining everything you need to know about this profit-pulling stock. It's as free as this article, so grab yours today!
The article 3 Real Estate Stocks Fighting for $6 Billion originally appeared on Fool.com.Fool contributor Justin Loiseau owns shares of Zillow and once spent three weeks on couches in NYC trying to find a place to rent. You can follow him on Twitter @TMFJLo and on Motley Fool CAPS TMFJLo.The Motley Fool owns shares of Zillow and Google.Motley Fool newsletter serviceshave recommended buying shares of Google and Zillow. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors.Try any of our Foolish newsletter servicesfree for 30 days.