Trulia: Critical Ad Inventory Expansion Catalyst And Events To Monitor

| About: Zillow Group, (Z)

Key Points:

  • Trulia (TRLA) management recently mentioned on their October 30 earnings call that they are testing the expansion of Trulia Local and Trulia Mobile advertising inventory from 2 slots per ZIP code to 3 slots (a 50% increase)
  • The last time Trulia expanded ad inventory (March 2013; expanded from 1 ad unit per ZIP code to 2), it helped propel that quarters revenue well above wall street analysts' consensus estimate ($24.0 million versus the consensus estimate of $21.1 million) and a caused an increase of more than 11% the day after earnings
  • My research indicates that Trulia has launched 3 ad slots in the majority of its ZIP codes--well beyond what "testing" would imply (and much more than Wall Street is expecting for the quarter).
  • Trulia has advertisers on wait-lists for its best ZIP codes; the early expansion to 3 ad slots in all of these wait-listings ZIP codes is likely to propel Trulia's revenue/earnings above wall street analysts expectations for the fourth quarter (likely driving Trulia's stock price higher)

Critical Events to Watch Out For:

The expansion to a 3rd ad unit is a big deal, and professional investors will soon begin to ask management how testing is going; if management answers that question publicly or privately, it could create a significant move in Trulia's stock price.

Investors speaking with management will most likely occur at investor conferences hosted by Investment Banks -- so tracking these events could be critically important!

  • 1) Trulia management is presenting at the UBS Global Tech conference on November 19th
  • 2) There are at least 4 potential wall street conferences Trulia Management could present at in early December
  • 3) Trulia management could possibly pre-announced its financial results for the fourth quarter
  • 4) Trulia will likely release its Q4 earnings results in early-February 2014

TRLA Revenue (Quarterly) Chart

TRLA Revenue (Quarterly) data by YCharts


Quick Background on Trulia's Three Revenue-generating Businesses:

Trulia competes primarily with Zillow(NASDAQ:Z) and Move, Inc. (NASDAQ:MOVE) in the real estate market. With the recently completed acquisition of Market Leader, Trulia has three revenue reporting verticals:

  • Trulia Marketplace
  • Trulia Display Ads
  • Market Leader

Over time, Trulia plans to integrate Market Leader into Trulia Marketplace, but for the fourth quarter ("Q4) management provided revenue guidance for each of the three line items independently:

  • Trulia Marketplace: $25.5 million to $26.25 million
  • Trulia Display Ads: $8.5million to $8.75 million
  • Market Leader: $14.5 million to $15 million

For today -- we care about the Marketplace vertical

In the Marketplace vertical Trulia charges real estate agents subscription fees. A minority (perhaps 20%-25% of Trulia's Marketplace revenue) comes from Trulia Pro subscriptions--which real estate agents use to highlight their listings. The remaining 75% to 80% of Trulia's revenue comes from Trulia Local Ads and Trulia Mobile Ads -- which are display ads real estate agents buy in order to advertise to prospective clients (click on any non-Featured house on Trulia, and you will see agent advertising slots in the upper right hand corner).

What Happened: Trulia Is Rolling Out New Ad Inventory Ahead-of-schedule

Trulia management said on October 30th:

we have just started testing in a limited number of markets the ability for a third ad slot, and we will make a decision in early 2014 about whether we roll that out consistently across the platform

Transcript reference link:

Why it Matters: Trulia management implied it's just "testing" ad expansion to a 3rd unit, but I recently analyzed 250 ZIP codes by hand (5 ZIP codes per state, randomly selected) and found that the majority have 3 advertising slots available! This is unexpected, and will likely be a big revenue growth driver for Trulia.

Trulia has a wait-list for more than 10% of the ZIP codes in the U.S., and the ad-pricing on these wait-list ZIP codes is typically 50% to 200% higher than average (i.e. Real Estate Agents pay more to advertise in Beverly Hills than middle-of-nowhere Montana).

In March 2013 when Trulia expanded ad units from 1-per-ZIP to 2, the company reported a big revenue number for the quarter ($24.0 million versus the consensus estimate of $21.1 million), which drove an increase of more than 11% in the stock the next day.

The data for this new expansion from 2-ad-units-per-ZIP to 3 appears similar. Wait-list ZIP codes have "ready to buy" demand at a price 100% above average. If all of the wait-listed ZIP codes sold their 3rd ad unit, it would be a step-function +20% increase in Ad Revenue (well above the 8.5% ad revenue growth Trulia guided for in Q4)!

Event Watch

Investors will be asking management how the "testing" of the 3rd unit is going when they meet with them, and there is at least one event in the very near future where management could answer that question (either publicly or privately):

(Trulia Event Calendar for November: click to enlarge)Click to enlarge


  • Trulia management is presenting at the UBS Global Tech Conference on November 19

Additionally, there are at least 4 potential wall street conferences Trulia Management could present at in early December, and a update will be provided by either:

  • A) Trulia management could possibly pre-announced its financial results for the fourth quarter in January
  • B) Trulia will likely release its Q4 earnings results in early-February 2014

It is also worth nothing that Trulia shares were up nearly 10% on November 13th, where management also presented at a conference (see calendar above). It is possible that management has already let a few investors know about the ad unit expansion (and its success) at that conference, but the newswire is attributing the move to rumors of a potential acquisition. We will never know which is correct (or maybe its a bit of both); but even if management has started to tell investors about the success of the ad expansion testing, only a small portion of investors are privy to the info, and the news should continue to place upward pressure on Trulia shares.

Last, Trulia investors should pay close attention to the events of competitors Zillow(Z) and Move, Inc. (MOVE) as well. As detailed in the figure below, Trulia's stock price exhibits exceedingly strong volatility when Zillow or Move, Inc. have a key event; Trulia's price changes by an average of 10% the day after Move, Inc. reports earnings and by more than 6% when Zillow reports earnings--far above the volatility internet companies typically report when a competitor releases earnings.

As such, Trulia investors should also closely monitor the events of these two companies due to the high-volatility-risk these events present for Trulia.

(Trulia's Holistic Event-Impact-Analysis; click to enlarge)Click to enlarge


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.