Online real estate company Trulia (NYS: TRLA) went public last Thursday at $17 a share, opening at $22.10 and reaching $24 before market close. Not a bad start for a profitless company in a competitive sector. Since its IPO, however, things have cooled off, and Mr. Market's having a second look at Trulia's runaway rise. Let's take a look at the company's financials, its competitors, and the macro environment to see what we can expect in the coming months.
Turning a blind eye to the outside world, Trulia's financials are enough to make any growth investor salivate. In the past five years, revenue has grown from $1.6 million in 2007 to $38.5 million in 2011. Sales increased over 90% last year and the year before.
Profit, however, is little more than a sparkle in Trulia's eye. The company is solidly in the red for every fiscal year, losing just over $6 million in 2011.
Trulia's growth seems unstoppable... until you take a look at its competitors. No Trulia investor should feel confident with their decision until they've taken a long hard look at Zillow (NAS: Z) . With essentially the same business model, Zillow's established partnerships and market cap should give pause to any Trulia investor. It also pulled in profits for the first time in 2011.
That said, there are plenty of other floundering real estate advertising companies for Trulia to trounce. Realtor.com parent Move (NAS: MOVE) has suffered from falling sales for five straight years, and real estate lead generator Market Leader (NAS: LEDR) suffers from slow sales and has yet to pull a profit.
According to my fellow Foolish writer Morgan Housel, not only has the housing market bottomed, but it may even be on the rebound. In the past month, three macroeconomic reports have been released, all pointing to an upcoming real estate rally. The iShares Dow Jones U.S. Home Construction Index Fund (NYS: ITB) is up 34% in the past three months and 67% since January.
As long as this growth is sustainable, there will be plenty of prospective buyers and renters for Trulia to cater to in the years to come.
Foolish bottom line
After analyzing Trulia's financials, its competition, and the macro environment, almost everything seems in order to cash in on this newest company's IPO. But despite fast-growing sales and a recovering housing market, Trulia's competition gives me pause.
Zillow's scale not only gives it efficiency advantages, but it also plays a crucial role in the all-important network effect. Zillow welcomed 60% more visitors to its site in 2011 than Trulia, and the trend may continue to push these two companies' site traffic further apart in years to come.
Source: Zillow 10-K and Trulia S-1.
There might be room for both of these companies to exist within the growing $6 billion real estate advertising business, but for now I'm keeping my money with the larger, profitable competitor.
Beneath both of these companies' booming sales, their success rides on gathering and managing excellent housing data. Data mining is changing the way 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 1 Tech IPO Laughing in Facebook's Face originally appeared on Fool.com.
Fool contributor Justin Loiseau owns shares of Zillow. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, TMFJLo.The Motley Fool owns shares of iShares Dow Jones US Home and Zillow. Motley Fool newsletter services have recommended buying shares of Zillow. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.