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Trulia, Inc. (NYSE:TRLA)

Q4 2013 Results Earnings Conference Call

February 13, 2014, 17:00 PM ET

Executives

Ian Lee - Head, IR

Pete Flint - CEO

Sean Aggarwal - CFO

Analysts

Lloyd Walmsley - Deutsche Bank

Bo Nam - JPMorgan

Mark Mahaney - RBC Capital Markets

Ralph Schackart - William Blair

Kerry Rice - Needham & Company

James Cakmak - Telsey Advisory Group

Operator

Good day, ladies and gentlemen and thank you for standing by. Welcome to Trulia's Fourth Quarter 2013 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

I would now like to hand the call over to Mr. Ian Lee, Trulia's Head of Investor Relations. Please proceed, sir.

Ian Lee

Thank you, operator. Good afternoon and welcome to Trulia's fourth quarter and full year 2013 earnings call. Joining me today are Pete Flint, Trulia's Chief Executive Officer; and Sean Aggarwal, our Chief Financial Officer.

Before we start this call, I want to remind all of you that this presentation contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or our future financial or operating performance.

Forward-looking statements in this presentation include, but are not limited to, statements related to our business and financial performance and expectations for future periods; our expectations regarding our integration of Market Leader and the growth of the combined business; our expectations regarding the continued use of our products by consumers and real estate professionals; our expectations regarding macro trends in the market; our expectations regarding our natural marketing campaign and our expectations for our products.

Our expectations and beliefs regarding these matters may not materialize and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release that we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof and we disclaim any obligation to update any forward-looking statements except as required by law.

We also remind you that this call will include the discussion of GAAP and non-GAAP financial measures. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. The discussion of why we present non-GAAP financial measures and a reconciliation of the non-GAAP financial measures discussed in this call to the most directly comparable GAAP financial measures are included in our earnings press release that is available on our website.

Please note that our discussion of financial and operating metrics during the call today will primarily focus on consolidated data for Trulia and Market Leader. For a more detailed breakout of this data, please refer to the cumulative slides in the earnings presentation accompanying this call and is available on the Investor Relations section of Trulia's website. This conference call is also being webcast and is available through the Investor Relations section of Trulia's website.

Now, I'll turn the call over to Pete.

Pete Flint

Thanks, Ian. Welcome and thank you for joining our Q4 and full year 2013 earnings call. Today, I'll provide a brief review of 2013 and the fourth quarter and discuss a few of the major initiatives we're undertaking as we ended 2014. I'll then pass the call to Sean for a review of our financial results.

2013 was a tremendous year for Trulia. We continued to transform the real estate experience on both sides of our marketplace. We made it simpler for consumers to search for homes and we helped real estate professionals better connect with consumers and be more successful.

We are winning consumers by harnessing our product and engineering DNA to capture data and deliver rich meaningful insights. We are helping house hunters answer the questions at the core of their search experience, empowering them with recommendations and information to identify the neighborhoods, homes and agents that best suit them.

Consumers are increasingly searching for homes and real estate professionals on the go. Trulia has played its part in this mobile revolution by building an industry-leading mobile platform; our mobile app lead with a quality and easy to use. The results of this are clear in our metrics.

In the fourth quarter of 2013, about 40% of our unique business came from mobile devices. Mobile users are also highly engaged driving more than 50% of our total visits and most importantly, they are highly transaction-ready, representing approximately 60% of our for-sale lease.

As we have become more central to the home sales process for consumers, Trulia has also become a go-to marketing solution for more and more real estate professionals. We finished the year with nearly 60,000 subscribers, more than double the 24,000 we had at the end of 2012. Agents recognize that Trulia connects them with consumers who are in market and serious, delivering extremely attractive return on the dollars they spend on us.

With the addition of Market Leader to the Trulia family in 2013, we possess one of the industry's most comprehensive platforms for real estate professionals. We offer a one-two punch that only helps agents connect with serious consumers but also provides all the help we need to help convert the leads they receive into closed transactions.

For both consumers and real estate professionals Trulia has cemented its position as a leader in our industry. We believe that we're still in the early innings of our growth and we have bought the platform that will enable us to capitalize on the enormous opportunity ahead of us.

Let me now move to a review of our business in the fourth quarter of 2013. Throughout 2013 we advanced our vision to transform our industry based on three foundational pillars. These include one, delivering a killer experience to consumers especially of our mobile devices. Two, growth our agent base and building a leading platform for the industry and three, extending our marketplace into adjacent markets.

We made tremendous progress on all fronts in the fourth quarter. For consumers we continued our relentless focus on creating an amazing user experience, driven by our commitment to product leadership, engineering and innovation. This contributed to the growth of a large, highly engaged and transaction-ready consumer audience.

Despite the fourth quarter being the season's slowest quarter in the real estate industry, unique business grew by 49% year-over-year in Q4; 24% on Trulia stand-alone. Mobile traffic grew 86% year-over-year, 71% to Trulia stand-alone. However, it's not simply traffic that's important to us, it's the quality of our audience and how engaged they are that are most critical.

We believe the true measure of effectiveness is attracting transaction-ready consumers that are serious about moving as these are the consumers that real estate professionals want to connect with. Viewed through this lens, the metrics are an even more compelling story. While overall unique visitors were 49% year-over-year including Market Leader in Q4, the sale leads (indiscernible) grew by more than 100% year-over-year including Market Leader. This means consumer engagement is growing quickly and that is what we continue to deliver and attractive returns of our investment for agents.

We have attracted a large audience of transaction-ready consumers, people who are in market for home, however, we are just getting started. Our industry is still in its infancy, there are tremendous opportunities developed in leading brands and company.

We have historically grown our audience and consumer awareness by primary organic needs; product, engineering, PR and word of mouth. This year we will be complementing our traditional approach with our strategic marketing programs.

To take Trulia to the next level we have made sure that Trulia and our brands are top of mind, especially with consumers who are in market and looking to move. Our marketing campaign will be principally focused on these transaction-ready consumers and will be designed with two goals in mind. One, spread awareness of Trulia (indiscernible) movers and two, to make Trulia the primary and preferred in the category.

Because our marketing strategy is focused on transaction-ready consumers, the metrics that will be used to gauge the success of this campaign will be tailored accordingly. The goal is not simply to increase traffic but also to spark consumer engagements and agent activity. We will seek to drive more repeat consumer visits, more leads to agents and more subscribers to Trulia, ultimately delivering more revenue to our business.

We will be undertaking a multichannel campaign encompassing TV, radio, online and mobile. The design and implementation of the campaign will be guided by an analytical data driven approach and will be optimized to ensure success against the measures I described. We anticipate that our investment in marketing this year will be at approximately $45 million and it will likely kick-off the campaign in late Q1.

Given the number of phones sold in the country each year and the size of the transaction-ready audience, we believe this is the right level of investments. We believe that spending above that level will likely lead to diminishing returns and negative ROI.

Moving to our second more focused area, we are growing our agent base and building the leading platform for the industry. In Q4, the seasonally slowest quarter for the real estate industry, we continue to have momentum in growing our agent business. Over the quarter we added 3,300 subscribers bringing our total subscriber count to almost 60,000.

In 2013 a key contributor to our subscriber growth was our inventory expansion program. To take advantage of pent-up demand from agents in many of our high demand zip codes across the country, we gradually rolled out a second agent placement during the year.

The inventory expansion program has been well received by professional customers. In fact in many zip codes, the second placement is also sold out. During the fourth quarter of 2013, we began testing the addition of a third agent placement to determine if we could have more inventory while preserving a high ROI experience to existing subscribers. Our test was successful and we began rolling out the third slot in Q1 2014.

The fourth quarter was the first full quarter in which Market Leader was part of Trulia. Market Leader provides enterprise software solutions to 5 of the 10 largest brokerage companies and three of the nations' largest real estate franchise organizations. It's clear that our partners in the real estate industry believe in the power of Market Leader and the ability of a combined Trulia and Market Leader operating system to help out agents to be even more successful.

Our integrated Market Leader is progressing well and we are on track to meet our key internal milestones. As we discussed previously, our initial focus has been cross-selling our products to our respective customer basis. There is significant opportunity for cross-sell given that our overlap between Trulia and Market Leader this quarter is only 20%.

Teams are also hard at work on product integration development. Later in the year we expect to begin integration in the first of our products that combine the best of Trulia and Market Leader features.

The third part of our vision is to expand our business to gradually adjacent markets. In rentals we're continuing to build a strong consumer audience and establish a foundation for scalable business in the years to come.

Our business continues to perform very well with significant growth and traffic and leads generated during Q4. Rentals is a mobile centric business and we are one of the leading mobile platforms in the industry. The mobile business has doubled year-over-year and rentals leads generated from mobile devices grew at a similar rate. Our rental mobile apps are amongst the top in the sector with ratings of over four stars out of five for both our Android and iOS apps.

Our rental business experienced strong growth in our largest metros. For example, in New York City, we have a deep listing coverage and a leading mobile app. Our rentals platform in Manhattan is specifically tailored to the needs of that market and delivers a simple, user friendly consumer experience. Consumers are responding with our mobile business almost tripling year-over-year in New York City.

In our mortgage business, we're continuing to build the elements of our business model. Centered today around a rate-table product and our relationships with the nation's largest mortgage providers. Our mortgage business continues to cater to a highly transaction-ready audience with over 90% of our leads for purchased inquiries rather than refi.

In summary, 2013 was a fantastic year on both the consumer and professional side of our business. We expect 2014 will see us reach new heights as we systematically execute against our long-term roadmap to success.

Before I finish, I'd like to mention that Trulia will be hosting its first Investor and Analyst Day in San Francisco on March 6. We hope that many of you will be able to make and we will look forward to seeing you in person and sharing our excitement about Trulia and our opportunities.

With that, I'll pass the call to Sean.

Sean Aggarwal

Thanks, Steve. We experienced strong growth across our business in the fourth quarter. Our focus on building the best product in our industry enabled us to grow a highly engaged consumer audience while also achieving strong financial results.

The fourth quarter was a first period incorporating a full quarter contribution from Market Leader. In my prepared remarks today, I will focus on discussing consolidated Trulia and Market Leader numbers. My prepared remarks are accompanied by a presentation which is available on this webcast and also available on Trulia's Investor Relations website.

In the Appendix of the presentation you will find additional breakout for a number of Q4 financial and operational metrics for Market Leader. As a reminder, starting in Q1 of 2014, we will report the results in metrics of the two companies on a consolidated basis only. This is driven by the fact that as the sales forces of the two companies begin to cross-sell each other products and we integrate our product offerings, it will no longer be possible to aptitude the sale to Trulia versus Market Leader.

I'll now turn to fourth quarter results. Today, I will cover three items; an overview of key metrics, a review of fourth quarter results and guidance. I'll start with key metrics. I'll first cover our three key consumer metrics; total visitors, mobile visitors and user generated content.

Traffic for the combined Trulia plus Market Leader platforms totaled approximately 35.3 million monthly unique visitors, an increase of 49% year-over-year. Breaking that down, we had approximately 29.2 million monthly unique visitors during the quarter; to Trulia platform a 24% year-over-year growth. Mobile traffic growth remains strong with combined mobile monthly unique visitors of 14.3 million for the quarter and 86% year-over-year increase. For Trulia standalone, growth for mobile traffic was 71% year-over-year.

Moving to new contributions of user generated content, during the quarter our users made approximately 1 million new contributions to our site, a 26% increase over the fourth quarter of 2012. We finished the quarter with a cumulative total of over 11 million users generated contributions in our data base.

On the agent side of our marketplace, we focus on two key metrics; number of subscribers and average revenue per user or ARPU. Q4 was a strong quarter for subscriber additions in a seasonally slower period. The combined Trulia and Market Leader platform added approximately 3,300 new subscribers in the quarter. This is a strong validation of the value real estate agents see in the end-to-end platform that the two companies have created as well as one early proof point that this acquisition is already paying dividends.

Breaking down to subscriber adds, we added approximately 2,900 new subscribers to Trulia's platform ending the quarter with 39,291 paid subscribers, a 61% year-over-year increase. This was the fastest annual growth rate in subscribers we have achieved in the past two years, with successes largely driven by the ongoing rollout of our inventory expansion program and strong execution by our inside sales team.

Market Leader added approximately 400 new subscribers in the quarter ending the quarter with 25,482 premium subscribers. The combined company now has approximately 59,700 subscribers taking into account the 20% overlap between the subscribers of Trulia and Market Leader.

Combined ARPU for Trulia and Market Leader was $179 in Q4 compared with $175 in Q3. Trulia standalone ARPU in the fourth quarter averaged $192, up $6 sequentially. This was driven by ongoing price increases, maturation of existing subscribers and continued penetration of our mobile subscription product. ARPU for Market Leader was roughly flat sequentially at $155.

Having covered a few metrics, I'll next turn to a review of fourth quarter financial results. Fourth quarter revenue on a consolidated basis was 49.7 million, up 142% year-over-year or up 70% for Trulia standalone. Total revenue further breaks down into two categories; marketplace and media. Marketplace revenue which is comprised primarily of revenue from our subscription products sold to real estate professionals including Market Leader was 42.2 million for the quarter, a 190% year-over-year increase. This was driven by the addition of Market Leader, overall subscriber growth, price increases and increase in penetration of our mobile subscription product.

Media, which includes sales of display ads to national advertisers also performed strongly with revenue of 7.6 million, up 26% year-over-year. Our media business continues to be driven by solid execution and pricing leverage, as we become a must buy in the category. The growth was driven by strength across endemic verticals including mortgage providers and homebuilders.

I will next discuss earnings and then walk down the P&L commenting briefly on each P&L line item. Our discussion of operating expenses excludes compensation paid in stock. For details on operating expenses including compensation paid in stock, please refer to the Appendix of the earnings presentation accompanying this call.

Fourth quarter adjusted EBITDA on a consolidated basis was 7.7 million or 15% of revenue. This adjusted EBITDA performance demonstrates the underlying leverage capacity of our business model.

Gross margin for the quarter was 40.7 million or 82% of revenue compared with 85% in the prior quarter. The sequential decrease was due to the inclusion of Market Leader in our consolidated results. Market Leader's gross margins have historically been lower than Trulia standalone.

Sales and marketing expenses were 22.3 million or 45% of revenue compared with 46% of revenue in the prior quarter. The investment in marketing costs was offset by revenue leverage. Technology costs were 9.8 million, 20% of revenues consistent with 20% of revenue in the prior quarter. Our continued investment in engineering headcount was offset by revenue leverage.

G&A expenses were 6.9 million or 14% of revenue lower than the 16% of revenue we recorded in the prior quarter. The decrease was due to revenue leverage. Compensation paid in stock was 12.3 million or 25% of revenue, primarily composed of the retention and incentive awards we issued in connection with the Market Leader acquisition.

Having covered the P&L, let me talk on the balance sheet. We finished the quarter with 226 million of cash and equivalents and 230 million of convertible debt. During the quarter, we completed a successful convertible notes offering raising gross proceeds of 230 million, the offering price with a coupon of 2.75% and a conversion premium of 30%. 30 million of the gross proceeds were used to execute a stock repurchase concurrent with the offering and approximately 7 million was used to retire our existing credit facility.

I'll now close by covering guidance for Q1 2014. We expect the strong momentum in our business will continue into the first quarter of 2014. We expect total Q1 revenue to be in the range of 53.1 million to 53.5 million. Marketplace is expected to represent approximately 80% to 85% of total revenue. We expect adjusted EBITDA to be in the range of 1.4 million to 1.6 million or 3% of revenue at the midpoint.

For full year 2014 we expect revenue to be in the range of 245 million to 248 million. Marketplace is expected to represent approximately 80% to 85% of total revenue. For full year 2014, we expect adjusted EBITDA to be in the range of 18 million to 22 million or 8% of revenue at the midpoint.

Our adjusted EBITDA guidance for Q1 and full year takes into account the marketing campaign we announced today. We anticipate the campaign to commence in late Q1 and to be an approximately $45 million investment over the course of the year.

For modeling purposes let me share guidance for reconciling items to EBITDA. For 2014, we expect depreciation and amortization to be in the range of 27 million to 30 million. Compensation paid in stock to be in the range of 42 million to 46 million and CapEx to be in the range of 19 million to 22 million. At the end of 2014, we expect basic and diluted share counts to be approximately 38.5 million and 53 million shares outstanding reflectively.

I'll close by recapping the highlights from today's discussion. First, we continue to attract the highly transaction-ready audience with leads outpacing visitor growth. Second, we added approximately 3,300 new subscribers in Q4, a strong performance in the seasonally slower quarter for the real estate industry. And third, we announced the launch of a strategic marketing campaign focused on winning more transaction-ready consumers.

I'll now pass the call back to the operator for Q&A

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Lloyd Walmsley with Deutsche Bank. Please proceed.

Lloyd Walmsley - Deutsche Bank

Thanks. I had a couple related questions, if I may, on the marketing plan. It seems like a pretty massive number and a bit of a strategic pivot for you guys. You've always focused a lot on really the hard-core qualified audience. And I'm wondering how you guys think that TV campaign is going to drive that kind of qualified lead? And on a related basis, how have you been able to test to get comfort with that, given TV is pretty hard to test on a small scale and this is such a big plan? How do you really get comfort around that? And – or was it more of just kind of a move you felt you had to make competitively that's less kind of ROI driven?

Pete Flint

Thanks, Lloyd. So no change in strategy. We fundamentally believe that had success with both on building the best product and attracting a large transaction-ready audience. And if you know, we have thought deeply about some opportunities to accelerate our core strategy. And after the analysis that we have performed in 2013, we are confident to complement our focus on core product and engineering to launch the strategic marketing campaign. The focus remains absolutely on transaction-ready consumers. And once again, our focus is on attracting and increasing awareness amongst transaction-ready users. But then also consumers that maybe familiar with Trulia and maybe familiar with other brands, we want to make using marketing, Trulia the primary and preferred app for the consumers in the category. So it's very much a data-driven approach both on analysis. And just touching on the analysis that we performed in most of the second half of last year, we learnt a lot. We learned a great deal during the testing and analysis. And while I'm not going to give you the sort of – unable for competitive reasons to give the deep insight that we generated from that analysis, a good portion of that was based on what is the cost per acquisition for consumers against different channels, against different hurdles, against different geographies and looking at the relative lifetime value of those consumers. We listed it for Trulia, we listed this for our competitors and we also listed it for digital companies that have employed multichannel marketing strategies in recent quarters. So, a significant number of learnings and we think those learnings are obviously very important to us and enable us to increase the efficiency of our marketing spend and also compress and accelerate the time to market. So we feel very excited about this. We think it's a natural course of our business and we see it as an accelerant quarter actually.

Lloyd Walmsley - Deutsche Bank

Okay. And then as just a follow-up, if I may, have you guys already started planning the creative around this? And kind of what should we look for in terms of how you differentiate Trulia versus the competition in the ad creative in the plan?

Pete Flint

No, you're absolutely right. Yes, we have been working hard on the creative and a fair amount of research – a significant amount of research was done last year. And that's flowing into the creative execution. I'm not going to preview anything on the call but wait and see, we're very excited about it at the end of Q1.

Lloyd Walmsley - Deutsche Bank

Thanks guys.

Operator

Your next question comes from the line of Doug Anmuth with JPMorgan. Please proceed.

Bo Nam - JPMorgan

Hi. This is Bo Nam on for Doug. Thanks for taking our questions. Can you give us – can you elaborate a bit more on your guidance for revenue and EBITDA? What does it assume on the top line? Do you have any revenue benefits built in from the increased marketing spend, any weather impact? And then on the cost side, any synergies assumed with Market Leader? And if you can provide any kind of sense of the 45 million, how that's going to trend through the year, if it's going to be heavier up front versus the back half of the year? Thanks.

Sean Aggarwal

This is Sean. I'll touch on the components of our guidance. So, for Q1 and 2014 our guidance takes into account the fact that our core marketplace business and our Market Leader businesses are performing extremely well, and you see that in our Q4 results particularly in the number of subscribers we've added and both businesses are just firing and we've incorporated that into our guidance. There is no specific unusual weather-related trends that are incorporated in our guidance. Our top line guidance doesn't incorporate the 5 million of incremental revenue that we expect to generate from the Market Leader transaction that we have communicated at the time of the acquisition. So, that 5 million is incorporated into our revenue guidance. The other element of our revenue guidance for the quarter and for the year takes into account the reality that our media business which comprises about 15% of our revenues; first of all, Q1 is the slowest seasonality quarter for the media business and second, our media business by its nature tends to be less predictable than our marketplace business. So those factors are all taken into account into our top line guidance. By way of the EBITDA guidance for the year and how you might expect it to trend over the course of the year and the marketing campaign at $45 million, out of the marketing campaign and the $45 million spend will follow the arc of the seasonality of the real estate industry which as you know, seasonality kicks into high gear in mid Q1, Q2, Q3 are very strong seasonal quarters and then it tapers off in Q4 and our investment in the marketing spend will follow that seasonal arc of the industry such that full year guidance for EBITDA is 8% but we would expect that there is higher EBITDA in the second half of the year.

Bo Nam - JPMorgan

Okay, great. And just quickly on – so the top line, does it assume any lift from this marketing campaign?

Pete Flint

It's too early to say, Bo. At this point we have yet to launch the campaign, so there is nothing specific that we have modeled in from the campaign. I think this will be – once we launch the campaign and get the early results, we will then be in a position to see if there is any change merited to our guidance.

Bo Nam - JPMorgan

Okay, great. Thank you very much.

Operator

Our next question comes from the line of Mark Mahaney with RBC Capital Markets. Please proceed.

Mark Mahaney - RBC Capital Markets

Thanks. I was wondering if I could drill in on the three quick trends and just any color you have on them. First, the Trulia unique visitor growth of 24% in the December quarter, it's a good number intrinsically, but it's obviously a slowdown versus some of the growth rates that you've had or experienced before. Is that – any particular color? Anything that was unusual about that that would make us think that that number should come back up as you go through '14? And maybe that's what the campaign – brand campaign will help with? Second, the ARPU trends at core Trulia that seemed to kind of get back on the trend line, just any color on what caused that to kind of grow year-over-year and rise sequentially. Is that pricing? Is that product suite, et cetera? And then third – sorry to bunch so many questions here. Third had to do with the media revenue growth of – Trulia media growth of about 26%. Again kind of a slowdown, not that important, not the most important part of your business but any particular color on that? And is that something that you like that trend or is that something you'll want to try to reaccelerate next year? Thanks a lot.

Pete Flint

Mark, I'll take the traffic question and then pass to Sean. So in Q4 – overall, there was an industry slowdown in real estate searches across the board in 2013, the first half due to low rates. There was a bit of a pull forward. First half of the year was very strong and second half was quieter. We also had a relatively tough comp based on the IPO at the end of 2012, so the growth rates were rapidly low. All that said, a couple of things we're seeing underneath. So, one is that the lead volume is significantly outpacing UB growth. The quality of our audience is very strong and we're seeing, as we shared, the lead volume is roughly double the UB volume in terms of growth rates. Secondly, the agents are loving the services we provide. You've seen that the – Sean shared net adds 3,300 with the highest growth rate of a larger base in over two years. So we're seeing that the fundamentals of the business are very strong. And then just as we look out, the marketing campaign we planned for the end of Q1 and so while we're not focused on this driving UB numbers for the sake of driving UB numbers, we would expect that we'll get some incremental lift from Q2 onwards.

Sean Aggarwal

Let me touch on the media question first that you had. Media, which was about 15% of our revenues, had a 28% year-over-year growth rate in Q4 and we're very pleased with our media business. I think there's two things to be noted there as we think about 2014 and what to expect there. One is media, as you know and as we've talked about previously, is a less predictable business. It's somewhat deal driven and if certain large advertising deals close in the quarter, it's a good quarter or not. So there is that element of the business. And the second trends on the way is the migration from desktop to mobile and our emphasis in that transition is on our marketplace business, the Trulia mobile subscription products that we built and launched in middle of 2012, has a much, much higher effective ECPM in the hundreds of dollars relative to any media display type of placement we might do. So whatever possible as we're making this migration and the traffic is migrating from the desktop to mobile, our inclination is to favor our marketplace business and the subscription based products rather than our media display type of products. So those are the trends that are underway and will continue to play out over the course of 2014 in our media business. Then the fourth question you had was around ARPU and the trends that we saw, so I'll just in context here as I shared in my prepared remarks, ARPU for Q4 at $179 was up sequentially versus Q3. And for Trulia standalone, ARPU went from $186 in Q3 to $292, up $6. And we expect over the course of 2014, ARPU will continue to increase modestly over the course of the year. And the trends on the way are twofold. On one hand, you have forces driving ARPU upwards and those will continue over the course of 2014 and those are one, price increases, given the 10x ROI that are subscribers get, there is tremendous headroom for increasing price over time and we will continue to do so. Second is the sale of premium priced products like the mobile subscription product which we sell at a price 10% to 20% higher than the desktop and that also drives ARPU up. So those two forces are driving ARPU up. On the other hand there is downward pressure on ARPU that's created by the addition of new subscribers. When a new subscriber or a new real estate agent comes on to the Trulia platform, they typically come in at a lower price point, a lesser market share. They are testing out the platform. And then over time as they mature, their contract comes up for renewal, they had success, they'll say, all right, go ahead and increase my market share and their ARPU starts to increase and starts to match the ARPU of existing subscribers. So in an environment where we're adding a lot of new subscribers as we did in Q3 of last year, it can get down the pressure on ARPU purely from a mix of new subscriber things. So that's some context around forces that are underneath the ARPU tends but they're very, very pleased with the results we saw in ARPU in Q4, the sequential increase. And as I said, we expect ARPU to continue to increase modestly over the course of 2014.

Mark Mahaney - RBC Capital Markets

Thank you, Sean. Thank you, Pete.

Operator

The next question comes from the line of Ralph Schackart, William Blair. Please proceed.

Ralph Schackart - William Blair

Good afternoon. First question just another one on marketing spend. As you sat down and finalized your $45 million budget for the objectives that you want to accomplish, can you maybe just give us a little bit of color, more color given the absolute level here. Why 45 million was sort of the right level relative to the objectives that you want to accomplish? And maybe why something a little bit less or maybe frankly a little bit more wasn't decided on? And second, on the inventory expansion, I think on the call you had said that you're done phasing out a second slot and then moving to the third slot. Any sort of color you could give on the third slot and/or the second slot? Are you starting to already see the second slot maybe sold out in some high demand zips? Thanks.

Pete Flint

So on the question on the why 45, we've looked at this deeply and looked at this across a number of dimensions. So, the goals that we shared are around – one is driving more transaction-ready consumers to get them aware of Trulia and two is to get more primary usage within the category of our apps [ph], the consumers may or may not be aware of us. And if you notice, roughly 5 million homes sold a year. We have a sizable audience within that, so we certainly see opportunity to grow the audience and engagement. And based on the other investments we want to make, we want to continue to invest in product and engineering. We'll continue to invest and building out a little bit margin in our sales force. We see marketing as an accelerant based on the unique economics, an analysis we did during 2013. So that's the thinking about the size of the opportunity. And we thought that frankly more would be diminishing returns. And so we thought that that's the appropriate number to spend on marketing this year. We feel good about that and we also look across multiple channels. As we've done some small scale tests, but we are using pretty much a data driven approach as we see opportunities that shift in and turnaround. We'll optimize the various metrics and cohorts and geography, then absolutely do that to ensure that we are most efficient with the spend. We'll be going into this feeling good about the instrumentation, analytics and research to be done that we can do well straight out of the gates. And the other question in term of how we're feeling about inventory expansions. So the pacing of the inventory expansion 2013 was to balance the consumer experience with the agent experience and we did it, rolled it out almost over a 12-month period – little under a 12-month period. You're absolutely right, in some of the high demand zip codes, the second slot has sold out. We ticked off in earnings in the beginning of this year, the third slot. One would expect that the rollout would be faster than the almost 12-month period in 2013, but we're not giving an update on the timeframe of that rollout this year. But we've been very happy with the rollout both to the consumer experience and also the agent experience and ensuring that we're seeing satisfaction rates at a strong revolver and we're also seeing that they're getting a very strong return on investment for this spend with Trulia.

Ralph Schackart - William Blair

Okay. Thank you very much.

Pete Flint

Thanks.

Operator

Our next question comes from the line of Kerry Rice with Needham & Company. Please proceed.

Kerry Rice - Needham & Company

Thank you. I was wondering, some of these are housekeeping, but number one was how long is the average contract now for agents? Is it is 12 months or 6 months? And what kind of lift are you seeing on the ability to raise prices? I don't know if you can think of – give us a percentage lift or so? And then a couple housekeeping; the ending subscriber numbers for both Market Leader, you combine them and then you take the 20% overlap. Just kind of want clarity, you kind of take that 20% overlap out. But that 20%, are they – they're actually paying a subscription whether it be Market Leader or on the Trulia side. So do you assume that eventually they will move one or the other, other side? And then, finally if, Sean, you can talk – give us the number of new mobile subscriptions in the quarter?

Sean Aggarwal

Sure, Kerry. I'll touch on the items you talked about. So first of all on ARPU – contract length is our first question, it's six months on average is the contract length. We offer as you know a variety of lengths. As a real estate agent you can come in and sign up for one month, six months, 12 months. The average contract length is six months and has been for some period of time. Then let's see you were asking about on ARPU our ability to raise prices and so on. The underlying sort of concept behind is the ROI that I touched on earlier with the 10x ROI, we've continued to see very significant headroom to raise prices all the time up until the point that ROI compresses down to 2x or 3x type of an ROI. The path to walking there will be over the coming year and may not always be a linear path every single quarter because we at any given time and any given quarter, we are balancing different elements around price increase, new product introductions, selling in more mobile products, introducing new products, inventory expansion rolling that out and there is only so much that we want to lay into the market and/or have our sales team be working on and pushing on at any given time. So for that reason, price increases may not be a linear quarter-after-quarter event. But if you go to rough gauge for what's possible over time, might be best to look at our history on ARPU over the last three years. If you look back you will see that fairly consistently over the last few years we've been raising prices and ARPU somewhere in the 20% to 30% year-on-year range. So hopefully that's a little bit of color around pricing ability going forward.

Kerry Rice - Needham & Company

That helps.

Sean Aggarwal

Then, let's see, on TMA attach rates, so again as a reminder for everyone on the call, as I mentioned previously, we rolled out the Trulia mobile subscription product in the middle of 2012, positioned it and priced it as a premium product and it continues to be priced at a premium, 10% to 20% premium to the desktop. And the cash rate at the end of Q4 was 33%. So if all our paying subscribers – all of Trulia's standalone paying subscribers 33% or approximately 12,800 have also purchased a mobile subscription product and that compares to a 31% attach rate at the end of Q3. And what's most remarkable about all of this is that when we look at these, approximately 13,000 subscribers that have signed up for the Trulia mobile product, the overwhelming majority, about two-thirds of them, also have a subscription to the desktop product. So this is largely an incremental in addition to type of a behavior as they're signing up for this premium mobile product in addition to the desktop product.

Pete Flint

Then Kerry on the – I think it was the final question around the subscriber between Trulia and Market Leader and so on, and I may not exactly answer what you were asking about but the way we sort of arrived at it was we take the Trulia subscribers and then we look at the Market Leader subscribers and 20% of the 25,000 Market Leader subscribers also have a subscription to the Trulia products. And so we back out roughly 5,000 subscribers from the total and that's how we arrive at the subscriber number that's roughly 60,000.

Kerry Rice - Needham & Company

And I understand the calculation. I think that my question was more centered around, as opposed to taking them out, or maybe is the assumption that maybe just I guess with mobile as well, that since they are already customers, you don't want to double count them as subscribers. But nonetheless, they are paying an additional subscription revenue stream to you guys.

Pete Flint

That's exactly right and thanks for clarifying that. It's just the – I suppose the conservative lens we've taken on this and it's the same phenomena as you're alluding to, but on mobile we have these 13,000 subscribers of which as I mentioned roughly two-thirds or call it 10,000 subscribers that have both the desktop and the mobile products but we only count them once. So when we report that we have 60,000 subscribers, those 10,000 people we only count once even though they have got two separate products and so on. So it's the same approach we're taking with Market Leader. But you're absolutely right. These are people that are purchasing our products and likely these folks with the overlap are actually the most engaged, the highest performing and ones that are earning the most commissions and likely the ones that have continued to buy more and more products from us over time.

Kerry Rice - Needham & Company

Okay. Thank you so much.

Pete Flint

Thanks.

Operator

(Operator Instructions). Your next question comes from the line of James Cakmak with Telsey Advisory Group. Please proceed.

James Cakmak - Telsey Advisory Group

Hi. Thanks. I just wanted to follow up on the marketing again. Pete, you talked about around that 45 million number and how you're thinking about it. So is this kind of a one-off initiative for this year or do you think that you feel that it's something necessary going forward just given the augmented spend from competition? Basically, are you shooting for a target and then pull back or should we think about this more as a new baseline? And then tying into that, in the past, we've talked about a 40 million transaction-ready audience size. And you're pretty close to that number during the seasonally high summer months. So would you characterize this marketing spend as a reevaluation of your transaction-ready audience?

Pete Flint

Yes. So on the timeframe, so we're approaching this campaign with a one-year (indiscernible) in 2014 and we're investing at this point as we confidently believe it will create a larger business in the future over the next several years. It's too early to say about futures years out. In the second half of the year we'll use a data driven approach to look at the success against a variety of metrics and determine how we think about this in 2015 and beyond. In terms of the size of the audience, our primary focus is on a transaction-ready audience and there are – the 40 million number is an approximate figure that we've used before which we – where we think of the business and we shed some basic privacy amongst the core transaction-ready audience. We have 75% awareness. And the goals for that campaign is to increase that 75% awareness to a higher number, but then also to increase the primary usage of application. We're seeing that consumers are with such an important considered purchase, are looking at multiple apps. They're looking at different services. There are consumers that shop across multiple services and it's our focus both from a product investment and marketing investment to make Trulia the primary and preferred app to consumers who are about to make this very significant investment in a property. I just might add while we're here talking about the market investment, in Q4 we significantly expanded the team at Trulia. We were pleased to announce the addition of a CMO who is joining us who had spent many years at Intuit and a number of other companies. We're also complemented by functional experts within the organization on a variety of different channels as well as getting the counsel from our Board where we have the former CEO of eHarmony, the current CEO of Kayak and then also our agency is Draftfcb which is helping us on the creative and execution. So we feel really on top to bottom. We got a fabulous team to execute on this and deliver the required results. And so we're really looking forward to tremendous 2014.

James Cakmak - Telsey Advisory Group

Okay, got it. And then quickly to follow-up on your cash balance, you have additional funds from the convertible debt offering. If you could update us on how you're thinking about it today versus last quarter?

Sean Aggarwal

In terms of the cash balance, we now have $225 million of cash on the balance sheet which puts us in a good position certainly for our day-to-day needs but also positions us well for any M&A. And just to touch on that, our approach to M&A remains consistent with what you've hoped for us in the past in that the M&A strategy is tied to our growth strategy and we have said the growth areas that we are targeting in the future are rentals, mortgage and in the medium term home improvements and international. And as we think about expanding in each of these areas, we thoughtfully are thinking through the build versus buy option. In most instances, the answer will be both. We are an engineering-driven company. We build great products. However, in a select few cases the answer is we buy and that's where we will use the balance sheet to pursue our goals.

James Cakmak - Telsey Advisory Group

Okay. Thank you.

Operator

That concludes our Q&A for today. I would now like to turn the call back over to Mr. Pete Flint, CEO, for closing remarks. Please proceed, sir.

Pete Flint

Thank you very much. Thanks everyone for joining us today. And before we finish, I'd again like to invite you all to attend our first Investor and Analyst Day on March 6 in San Francisco and we hope to see many of you there. Operator, you may now end the call. Thank you.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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