The Online Real Estate Sector Is Struggling

Is the online Real Estate sector struggling? Quite frankly, it is. Let’s take a closer look at two of the players in the industry, ZipRealty (ZIPR), and Move (MOVE). ZipRealty, a full-service real estate site, has been reviewed here before.

On November 7, 2007, ZipRealty announced 3Q earnings with an increase of net revenues of 7% to $28.0 million, up from $26.2 million YoY. The number of Zip Agents also grew by 30%. However, the company reported a net loss of $4.8 million compared to a net income for the same quarter last year. The current loss included a one-time charge for a proposed class action lawsuit settlement.

The total value of real estate transactions closed increased to approximately $1.24 billion in the third quarter of 2007 versus $1.20 billion for the same period in 2006. The total number of transactions closed increased approximately 10.4% to 3,829 from 3,467 during the same prior year period. Average net revenue per transaction decreased approximately 3% to $7,110 from $7,332 in the third quarter of 2006.

Overall, ZipRealty was optimistic with the results because the company outperformed the sector. It did indicate that it is faced with extremely difficult real estate conditions and are taking steps to lower its operating costs by $4.0 million annually. However, Zip did issue revised guidance in its earnings press release, and now expects revenues for the full year to be in the range of $97.5 – $102.5 million.

Given the current housing slump, however, ZipRealty hopes to continue managing itself through its current strategy of cutting operating costs, slowing down or stalling entry into new markets, and continuing to fortify its existing market share. The targeted results are a goal of slashing red ink by 12% to 18% in the first half of 2008.

With a market cap of $128 million and almost 23.4 million shares outstanding, ZIPR is remarkably cheap. At $5/share price ZIPR has not produced much for investors lately, dropping from $8 to almost half the value over the last 52 weeks before recovering a bit on Thursday. As I have said before, this one is definitely a ripe acquisition target for an internet conglomerate looking for a cheap entry into the sector. Who would it be? Murdoch, most likely.

click to enlarge

Move.com posits itself as the largest, searchable database of online real estate listings. It competes as a portal and earns revenue from advertising and commission fees. Offering services in online real estate, financing, and moving, Move markets itself as the essential research resource for anyone serious about real estate and relocation. It also owns such brands as Realtor.com, Welcome Wagon, SeniorHousingNet, FactoryBuiltHousing.com, and Home Plans.

Q3 revenues posted at $75.6 million, a flat result compared to YoY and net income posted a $4.6 million loss, which is similar to ZipRealty. Despite its announced strategy, general administration costs increased slightly to $52.8 million, and even with $3.9 million in non-recurring expenses, Move still would have posted a loss for the quarter.

However, Move continues to push for market share via partnerships, the latest being renewed in December with Microsoft (MSFT) to provide content to the 95 million MSN subscribers. This is a nice partnership since Move will continue to be the only source of realty listing for MSN. Our previous review of Move is here.

Unfortunately, despite all of its efforts, Move.com is now labeled a penny stock, and is trading at less than $3/share. Its Market Cap is $395 Million, making it the other opportunistic acquisition target for a larger player who wants an instant entry to the online real estate vertical.

click to enlarge

Comments

[Malkiel]

I've had the misfortune of having to search real estate online this Fall and the sites and the search engines are surprisingly unwieldy and primitive; the move.com owned sites are quite good as these go. Whoever puts together the best real estate search site will be the next eBay or Google, so this might be a penny stock worth speculating on...

[1999webinvestor]

Is it true that MOVE is being courted by Yahoo as a purchase?