ZipRealty, Inc. Q4 2007 Earnings Call Transcript

| About: ZipRealty, Inc. (ZIPR)

ZipRealty, Inc. (NASDAQ:ZIPR)

Q4 2007 Earnings

March 13, 2008 5:00 pm ET


Patrick Lashinsky – Chief Executive Officer and President

David Rector – Senior Vice President and Chief Financial Officer


Benjamin Schachter – UBS

Jeetil Patel - Deutsche Bank Securities

Jim Wilson - JMP Securities

Jack Pitts – [Company Inaudible]


Thank you for standing by ladies and gentlemen. You are online for today’s ZipRealty’s fourth quarter earnings conference. We are currently gathering participants and expect to be underway in just a moment or so. We do appreciate your patience and request that you please remain on the line.

Please stand by. We are about to begin.

Good day and welcome to the ZipRealty, Inc. fourth quarter and year end 2007 earnings conference call. At this time all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation.

It is now my pleasure to turn the floor over to your host, Mr. Don [Tomoff]. Please go ahead sir.

Don [Tomoff]

Thank you. Good afternoon everyone. With me on the call today is Patrick Lashinsky, President and Chief Executive Officer of ZipRealty and David Rector, the company’s Chief Financial Officer. Earlier today the company issued a press release describing its results for the fourth quarter and full year of 2007. A copy of that release can be viewed at the company’s website at

Before we begin I’d like to note that during the course of this call we make various remarks about future expectations, plans, goals and prospects for the company including but not limited to those involving our future performance, business outlook and 2008 guidance. Additional forward-looking statements include remarks concerning results of our existing markets, introducing technological improvements, gaining market share, reducing costs and driving operational efficiencies. All of these constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from the expectations, plans and prospects contemplated in the forward-looking statements and are subject to risks and uncertainties including those described in the company’s form 10K for fiscal year 2007 and other filings with the Securities and Exchange Commission, copies of which can also be viewed on the company’s website.

The risk factors identified in our SEC filings are incorporated by reference into this earnings call. Please note that to supplement its consolidated financial statements presented in accordance with Generally Accepted Accounting Principles in the United States, ZipRealty uses a non-GAAP measure of income that refers to as pro forma net income loss earnings that exclude certain items including stock based compensation, non-cash income taxes and certain one-time writings if any. These non-GAAP adjustments are provided to enhance the [inaudible break in audio] understanding of ZipRealty’s current natural performance and its prospects for the future.

ZipRealty believes these non-GAAP results provide useful information to both management and investors by excluding certain items the company believes are not indicative of its core op result and thus presents a more meaningful basis for comparison between periods.

Further, this non-GAAP method involves key data management uses for planning and forecasting its future operations. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

With that out of the way I’ll turn you over to Pat.

Patrick Lashinsky

Thanks Don. I thank you for joining us on the call today. First, I’d like to provide a brief overview of our 2007 performance after which I will turn the call over to Dave Rector to discuss specifics of our fourth quarter. I’ll then wrap the call with some closing thoughts which will provide some perspective on our outlook for 2008.

First, let me review the year. As you may recall our goal for 2007 was to accelerate development of our national network as we felt that investing in a down market while others were retreating would position us for long-term success.

Our investment was predicated on a belief that the market will ultimately correct like it has so many times and that our leadership and technology, innovation and other services will sustain what we believe to be an advantage over a traditional residential real estate model.

Due primarily to the rollout we knew that 2007 would be an investment year and we provided guidance back in February 2007 reflecting that view. A pro forma loss between $6 and $9 million. I’m pleased to say that not only did we open ten new markets across the country last year, but we did so within our bottom line forecast delivering a pro forma loss of $7.6 million. We also generated a 9% increase in revenue to $103.9 million which we are very proud of particularly since the market deteriorated dramatically from what we originally expected in early 2007 thanks in large part to the credit crisis which peaked in the back half of the year.

Looking at the fourth quarter I was pleased with our performance as we experienced better-than-expected revenue and early benefits from the cost rationalization plan we communicated last quarter. I’m also pleased that in the current environment we continued to gain market share across the board.

Moving on to our view of the market. Things remain tough. Residential real estate continues to be characterized by growing inventories and changing credit standards and in general we believe the American consumer remains uncertain. In addition the secondary market for mortgages remains soft which has, and will, negatively impact our business.

However, as I stated before, we still see significant interest in residential real estate. We know transactions are being pursued because scheduled visits are up 29% year-over-year. Furthermore our website had record visitation in 2007 and we see growth acceleration thus far in 2008. We believe this is happening because customers and potential customers are evaluating the market looking for value and opportunity. As agents increasingly contact to work with these buyers and sellers they become more informed and get a better feel for the market which we believe gives us an advantage.

Ultimately we make this information flow easy for both parties because our tools provide and interpret data and have significant data when it comes to buying or selling a home.

So in hindsight despite market conditions 2007 was a satisfying year as we greatly expanded our market and market share while meeting the bottom line financial commitments we laid out last February. As I look at 2008 I am confident that we will continue to bring value to the marketplace. We believe we have the people, technology and initiative to get us there and when the market turns our stakeholders will benefit from the leverage of our business model.


David Rector

Thanks Pat. Overall net revenue for the fourth quarter decreased $21.2 million and declined 8.3% in the fourth quarter last year.

Net transaction revenue including revenue referral and other income was $20.7 million for the quarter, a 7.6% decrease against the prior year. Our pro forma net loss was $5 million for the quarter, 22 cents loss per share and mostly in line with our expectation. We lost approximately $1.6 million or 7 cents per share for the fourth quarter last year.

As Pat mentioned, revenues increased by 9% to $103.9 million for the full year and resulted in a pro forma loss of $7.6 million.

Full transactions closed were up by 10% year-over-year compared to a significantly down overall market.

Average net revenue per transaction decreased by less than 1% in 2007 to $7,241 primarily as the result of the overall market softness during the year and our new market expansion into markets with lower housing prices.

Back to the fourth quarter. We continue to gain significant market share in our existing markets and we are encouraged by our relative performance in California where our closed transactions decreased by approximately 10% significantly outpacing the 40% overall market contraction. California represented 33.4% of our total net transaction revenue compared to 39.5% last year.

In our existing markets outside of California closed transactions for the quarter decreased by approximately 15% again outperforming the overall market contraction of approximately 27% in our existing markets.

Finally, our new market revenue more than doubled versus last year contributing over 16% of total net transaction revenue for the quarter, up 13% from the third quarter of 2007.

Continuing to the fourth quarter income statement let me first address our existing market performance. Net transaction revenues in our existing markets decreased by $3.6 million or 17.1%. This was driven primarily by a 13.8% decrease in the number of transactions closed compared to an overall market decline of 31%.

Average net revenue per transaction decreased 3.8% primarily due to declining home prices in California along with increases in foreclosure and bank-owned REO related transactions which typically involved further discounted prices. The cost to revenue percentage for existing markets increased 5.3% points for the quarter compared to the prior year due to our decreased revenue and to the mix of agent commissions paid as our more experienced agents tended to close a greater percentage of transactions in the upper market.

Bottom line, our existing markets delivered uni-level income of approximately $1.6 million compared to $3.8 million a year ago.

Turning to fourth quarter results for the six new markets opened in 2006 and the ten we opened in 2007. Net transaction revenues in the new markets for the quarter were $3.4 million, a 126% increase over the prior year. We are encouraged by this trend and expect new market revenue to continue to ramp for 2008.

Average net revenue per transaction in our new markets average $5,066 for the current quarter, a year-over-year decrease of 6.4%.

Cost to revenues increased to 55.1% from 51.6% last year due to commissions paid to our agents. This was expected. As new markets mature increasing numbers of agents achieve higher commission splits and therefore increase our cost to revenues.

New market sales and marketing expenses increased approximately $1.5 million for the period as the result of new market offices open year-over-year. Overall, this resulted in new markets loss at the unit level of approximately $1.2 million versus a loss of approximately $430,000 in the fourth quarter last year.

We added 386 net new agents over last year bringing the total agent count to a total of 2,180 at December 31, 2007. Of the total net additions, 36 agents were added in our existing markets and 350 in our new markets.

We announced an agent accountability initiative on our last call and largely as a result of this initiative we experienced a net decrease of 83 agents during the fourth quarter.

Average agent productivity for the quarter was approximately 0.45 transactions per agent per month compared with 0.6 for the prior year. This decline was primarily a function of the market conditions.

Looking at the rest of our expense structure…product development expense for the fourth quarter totaled $2 million versus $1.6 million for last year. This was due to ongoing investment in our website, development of enhanced tools for our agents and support for our new market expansion.

Overall market level sales and marketing expenses rose approximately $1.2 million to $7.7 million in the fourth quarter of 2007 driven primarily by new market expansion. At the regional and corporate level, sales and marketing expenses increased approximately $200,000.

General and administrative expenses decreased approximately $275,000 for the fourth quarter. We continue to expect significant leverage on our G&A costs as we scale the business benefits from our implemented cost reductions and drive increased operating efficiencies.

Turning to the balance sheet, we ended the year with $80.5 million of cash, cash equivalents and short-term investments and no long-term debts.

We started 2007 with a balance of $88.8 million and are pleased to have maintained this strong balance sheet despite our operating loss and investment in new market expansion and technology assets during the year.

Let me wrap up by providing our guidance for 2008. For the year we expect revenues between $114 and $118 million representing growth of 10-14% compared to our 2007 revenues of approximately $104 million. Overall we expect a GAAP loss in 2008 of between $8.2 and $9.7 million, which equates to a loss of 35-41 cents per share based on approximately 23.5 million shares outstanding.

On a pro forma basis excluding stock based compensation we expect our loss for the year to range from $4.2 to $5.7 million or 18-24 cents per share compared to the 2007 pro forma loss of $7.6 million.

Although we do not give specific core guidance we expect that the first quarter will continue the trend line of the fourth quarter, down year-over-year on the top line with a pro forma loss comparable to the fourth quarter.

However, as the 2007 new markets mature and with the year-over-year comparisons providing a sharp contrast with late 2007 credit prices drop we expect to reverse this trend for the full year.

We plan to open 2-4 new markets during 2008 including Long Island which we announced in 2007 and will open in spring.


Patrick Lashinsky

Thanks Dave. 2007 was a significant year for ZipRealty in that we expanded our reach nationally and continued to gain market share. We did so within our guidance parameters and around ground zero of the credit crunch which occurred in August. Going forward we will focus in optimizing results in the 16 markets we opened in 2006 and 2007 along with the 2-4 markets we will open in 2008.

Our focus in our core will be improving productivity, driving operating efficiency and gain in share. Fundamentally I believe we can achieve this goal through innovation and technology which are at the heart of our differentiated business model.

Let me briefly update you on each of these priorities. Obviously a key part of improving our results is improving agent productivity. Last quarter we discussed our agent accountability initiative and our focus on retaining and rewarding those agents who meaningfully contribute to improving this measure. We expected to lose agents as a result of this effort and as Dave mentioned we did. In fact, our agent count was down 3.6% from the third to the fourth quarter. Yet during 2007 we retained all but four of our top 200 performing agents. This is remarkable in the current environment where demand for top agents is very intense. I believe it is a testament to our business model and our prospects as agents are essentially voting with their feet for the company they believe will position them best for success.

Looking forward we will continue to stress quality over quantity and focus our staffing efforts in finding sales professionals that we believe will excel within our model. As I said before we will only accept and retain agents that are committed to the ZipRealty vision and are willing to embrace the process and tools at their disposal to deliver value to the customer. That is the bottom line.

I also talked about operating efficiencies. The cost per actualization plan we announced in October had an immediate effect starting in Q4. This will manifest itself in part on the G&A line which we expect to be down in 2008 versus 2007 and we see that reduction as important in the current market.

Last we continue to gain market share. For 2007 it was broad based with gains in all 17 of our existing markets, which provides an interesting contrast with our competitors. Ultimately our goal is to build on this plan and maintain double-digit market share gain versus our competitors in 2008.

Achieving these goals, in part, will hinge on technological innovation and speed of innovation, two things we believe we know how to do. In December we became the first real estate company to build interactive map features utilizing the Yelp interface. Taken from a site that allows locals to write reviews on local businesses. What this means is that our agents and web users can easily view a home’s proximity to restaurants, stores and parks that are currently reviewed on

Obviously getting a feel for the area is a major factor in deciding to buy a home and empowering agents to point those features out is a key differentiator and important part of delivering the ZipRealty [frames.]

Another example unique to ZipRealty was the electronic notification we sent to anyone who bought or sold a house with us last year. We offered to send a transaction summary to our 2007 closed client in an effort to quickly disseminate information that can be time consuming to track down during tax season. Our clients responded enthusiastically to this initiative.

We will be announcing additional customer and agent enhancements through 2008 but they all have common themes. Innovation to simplify and enhance the agent and customer experience which in our view will drive market share and build our brand.

Before we take questions I wanted to give you all some insight into what we perceive is success in the current market. What I will tell you is that senior management as well as the rest of our team feels strongly about what we are doing and we are attacking the challenges we face every day. Unlike many in our industry we are not going to use the falling market as an excuse for our performance.

In fact, we believe our results will anticipate improvement in 2008 versus 2007 as our guidance suggests. That is not to say we are unrealistic because we know there are forces at work that are out of our control and that is simply a fact. However, even in this environment we know that infusing technology, innovation and a new structure into what otherwise is a fragmented, disjointed industry work. We so no reason why we can’t make progress.

Our consistent market share gains quarter in and quarter out underscore what I’m saying. We will build on that momentum with productivity initiatives that are progressing and new technical features that have and will be rolled out in 2008.

So our goal is to deliver on all the little things that create the “WOW” factor with agents and customers with each transaction. We have work to do but I see evidence that we are getting there. We are certainly cognizant that if we do things right and consistently it will boost our performance and translate into long-term shareholder value, which is our primary goal.

Finally, I am very proud of all our people and would like to thank them for their efforts during 2007. I look forward to 2008 as another year of substantial progress.

At this point we will address any questions that you have.


Question-And-Answer Session


Thank you. The question-and-answer session will be conducted electronically today. To ask a question please press the * key followed by the digit 1 on your touchtone telephone. If you are using a speakerphone please make sure your mute function is turned off to allow your signal to reach our equipment.

Once again it is *1 for questions. We’ll pause just for a moment to assemble the queue.

The first question comes from the line of Ben Schachter with UBS.

Benjamin Schachter – UBS

Hi guys. Pat good to hear the aggressive tone in your voice. I like to see that. Let’s go through a few things. One you talk about the cash burn for the year. Sort of what were the key drivers there? What will that maybe look like for next year? Two…if you could walk through some of the operating matrix that you’d want on a quarterly basis. How would you think about that in terms of modeling for the year? Maybe talking about average net revenue, agent count, number of transactions and those kinds of things. And then finally, the idea that has come up in the past also is the costs around remaining a public company. Is there an opportunity to maybe take the company private? Any comments on that? Thanks.

David Rector

I think first thing lets go through the cash flow. For 2007 we earned about $8.3 million for the year. Roughly $3.5 million of that is attributable to our new markets both in their operating costs and CapEx that we spent for equipment going into the ten new market offices. We had another $3.4 million dollars of capital expenditures, some of that in the normal server capacity here and we opened up a secondary backup site in Denver. So that was sort of the CapEx.

For the most part, the new markets took up nearly 41% of that burn of the $8.5 million.

Turning to 2008 we expect to end the year with a cash balance in the $71-$72.5 million dollar range and that would be based on the pro forma loss range of $4.2 to $5.7. We’re looking at a CapEx of around $3 million and our depreciation is roughly the same to offset. The one other thing that we have to cover that won’t be out of normal operation. We have the payment on the litigation settlement that we talked about in the third quarter call. That has already been expensed. It is behind us as far as the PNL for 2007, but some time here in the spring of 2008 we will be paying approximately $3.6 million on that litigation settlement. So that sort of gets you down to where we think we’ll be at the end of the year on the cash basis.

Patrick Lashinsky

Okay. In terms of the question on the additional details for 2008, at this point we are not going to be giving any guidance beyond what they have already laid out on this call. We think it is pretty premature within this year and within the rapidly changing environment that is occurring for us to be able to do that. We’ll be giving an update in May on that when we’ve gotten through a little bit more of the seasonality and can kind of have a better feel for what exactly is taking place in the market. There are just too many things up in the air at this time for us to be able to give what we think is fair guidance overall on that piece.

Benjamin Schachter – UBS

Do you think that you can get to that number at the same or decreased headcount or should we assume an increased agent count?

Patrick Lashinsky

We will be increasing headcount. We are going to be increasing headcount. We will be having some definite gains particularly in our new markets. We will be very aggressive in hiring in those new markets and we will also are expecting to have some headcount gains in our existing markets as well. So in both areas we do expect headcount to grow during this year.

In terms of the third question about the costs of being public it is a cost. It is a significant cost to be public. There are definitely tradeoffs on it. However, at this time we are really focused on operating, running the company in the current environment and the situation we’re in and trying to do everything we can to raise the total level of value that we provide for stakeholders and that has been our focus. We haven’t really focused on anything else in regards to that.

Benjamin Schachter – UBS

Okay thanks. Good luck.


The next question comes from the line of Jeetil Patel of Deutsche Bank Securities.

Jeetil Patel - Deutsche Bank Securities

Thanks. A couple of questions. Can you first of all comment at this point in underlying just the overall revenue number for the year what do you think the market does from a change in price standpoint as you look at overall home prices and that is more from a macroeconomic industry standpoint. What is your assumption you’re looking at as you look at your overall market opportunity? Secondly can you just talk about…because we are only now getting into the spring selling season…are you seeing a lot new inventory? Are you seeing buyer commitment or buyers looking to kick the tires or at least go visit homes? Increase relative to that 29% or is that a little bit lower than that as we look at coming into the big seasonal portion?

Patrick Lashinsky

Sure. Let me address the first question which is on the current market conditions that underlay our assumption. We think that prices are going to continue to be under pressure particularly in the first half of this year before we go up against the comparison of the second half. Our underlying assumptions for our numbers include about a 10% decrease in the average home price macro in the markets that we are in. So we are considering that there is going to be…you have to remember that there is a significant increase in foreclosures and bank-owned REO homes that are coming on the market that continue to drive down prices. As long as that heavy inventory is there there will be more pressure on the prices. So we’ve built that into our assumptions for the year. I will tell you that as we get later in the year we think that those comparisons will start coming down and home prices will be more likely to stabilize than they are during the first half of the year for sure.

In terms of the second question in terms of the spring season and activity. We are seeing that activity as pretty high overall across. We are showing 29% more showings and scheduled visits with our clients. Our clients appear to be very active at participating in the market. There is more viewing. I wouldn’t necessarily call it tire kicking. I think of tire kicking as being someone who is just there kind of looking at it with no real head. We’re seeing that people are very interested in the market right now and they’re just trying to figure out if this is the right time and if they can find the right house at a good value. But there is significant interest that we’re seeing across the board and across all of our key matrix that show that there is…that we’re seeing very strong activity from the clients that we have.

Jeetil Patel - Deutsche Bank Securities

I guess the 10% decline that you…that doesn’t yearly so I guess the first half would be probably down closer to down 20 and the back half is getting down to a flat type of comparison?

Patrick Lashinsky

Probably not that drastic. Probably it will be down a little heavier in the first half as you are suggesting but I don’t think that we project that is going to be as drastic as you are suggesting there.

Jeetil Patel - Deutsche Bank Securities

And you are actually seeing an acceleration or consistent scheduled visit number out there right now in terms of growth year-on-year?

Patrick Lashinsky

We’re seeing an acceleration.

Jeetil Patel - Deutsche Bank Securities

Thank you.


Again it is *1 if you’d like to ask a question.

We’ll go next to Jim Wilson with JMP Securities.

Jim Wilson - JMP Securities

Thanks and good afternoon guys. I guess a couple of questions that are really about your relative performance position. Obviously California is down a lot more than the rest of your markets but you are down less in California relatively speaking comparably to the other markets. What do you think is the trend or what does the market see more in your value proposition do you think in California than they might be seeing at least at this point in other markets?

David Rector

I think there are a couple of things that go into that. First of all I think that California tends to be a little more technically savvy than some other parts and we have some great technical innovations that we think work very well. Sometimes it just takes a little longer to be adopted in other parts.

In 2006 towards the end we had a tough time in California. We made a number of significant changes in that market between management and some processes that we were doing and I think that we are really starting to see the effect of those changes. Outside of California they got into the problem a little bit later and we’re working our way through them right now and we’re taking the learning that we applied to California and we’re applying that to the rest of the country. So it is trailing a little bit behind it but we think that we really have figured out a good way of making sure that our agents are able to take care of clients, that we have the right tools available and that we’re able to help them get the information they need in a declining market to be able to make successful, good choices and options on that.

Jim Wilson - JMP Securities

Okay. Did you end up saying that you help get transactions done any faster than conventional players in the market? Closing time shorter than median average or anything like that?

David Rector

It’s very, very hard to tell that number because it is hard to tell when someone else starts working with someone or when they get it in. I will tell you that I think we do a great job in closing a high percentage of the people that come to us. I think in general we do help people find what they’re looking for much faster because we allow them to see everything and have access to full information which is an advantage to helping them make a smarter choice. But we just don’t know how long it takes other people because nobody else discloses it and it’s hard to know exactly what they are doing.

Our clients continue to give us very high ratings, continuing the course at a 96% satisfaction rate which to me is a sign that our clients believe that we are taking care of them as well, if not better, than they can be taken care of anywhere else. In this market and in the housing market speed is one of the key factors about how happy a client is. So I think that with the 96% satisfaction, clients are very happy with the speed at which we are able to help them transact.

Jim Wilson - JMP Securities

Okay. Just one more question. You noted, which was very interesting, that you have 29% more showings so far. I guess as I look at data it looks like to me that inventory is actually very disappointing. There is just not much out there and it is in general declining. So it is particularly interesting that your showings are up that much. So how would you characterize that? Just again further success at gaining a lot of market share?

Patrick Lashinsky

Well we’re seeing a different thing. We’re actually seeing that inventory levels are going up overall which would be a signal that there are less buyers out there because that is why the inventory levels are going up. So we think that is even more impressive for the amount of activity that we are seeing. But we have not seen that inventory levels are dropping. In fact we expect inventory levels to increase even more in the next 2-3 months as the loan adjustments take place and there are more homes that are put into the foreclosure market and into the REO. We expect total inventory that is available, not just homes on the MLS because our inventory that we are selling off of isn’t just the MLS. That is one piece and it is a big piece and it is important but we are also selling foreclosure homes and REO homes. We expect that total pie is going to continue to get bigger and for us the key is to make sure that our buyers are able to see all of them, have great opportunities and that we are giving them lots of options. We think we’re doing a good job of that.

And to answer your final question yes we do think that we are doing a good job of continuing to gain shares. We suggested on the call and we expect to continue to do that throughout the year.

Jim Wilson - JMP Securities

Okay thanks.


Once again it is *1 if you’d like to ask a question.

We’ll go next to Jack Pitts with [Sidfast Furniture].

Jack Pitts – [Company Inaudible]

Hi guys. Just wondering what the agent growth was in California? Maybe the actual number of California agents?

David Rector

At December the California agents 658. Outside of California 1,522.

Jack Pitts – [Company Inaudible]

How does that compare to December 2006?

David Rector

We had 650 at December 2006. We are up six. Relatively flat in California.

Patrick Lashinsky

And I think the one thing to remember as you look at those fourth quarter numbers is the agent accountability initiative that we put in place where agents that maybe just weren’t not able to accept this model or maybe weren’t able to produce we put significantly more pressure on that segment during the fourth quarter of this year than we have been in the past. We were more proactive about deciding to part friends with some people who had been here that just were not as successful as either we or they would like them to be. It was an initiative that we think has done good things for the morale of the company overall. It has done great things for the agents who are here and we think it will allow us to continue to be more successful with our agents and our productivity as we continue to move forward.

We are going to continue to focus on leveraging on having the best agents and that is one of our key goals. We are going to focus our resources on our best agents and the tools that we have and the leads that we have we want to focus them on people who can really do something good with them. We want to help our agents get better and so we’re using that. But we do expect to grow our headcount during this year.

Jack Pitts – [Company Inaudible]

Thanks. One additional. If you could talk about marketing because a lot of people are afraid that with Google’s pay clicks down it actually might be more favorable marketing market for you guys or you know Google’s management I think is going to argue maybe the opposite is true. They are actually not seeing much economic effects. But since you guys are at the heart of the declining real estate market. It would be interesting to know what you are seeing with online advertising. I don’t know if you do any off line advertising but if you could talk about that too it would be great.

David Rector

Within the total online marketing we are seeing that overall the traffic appears to be down some and not as high levels as it has been in the past. However there is also less agents that have the resources to go after it because it has been a tougher year and it is harder for them to continue to make those resources. So there is a balancing to some degree going on with those. For us the marketing has been we continue to focus on optimizing the dollars so that for every client we get in we get a higher percentage of them through each part of the funnel and we get a higher percentage of them to convert.

We are able to go through and leverage against what is going on in these higher advertising markets to continue to make that work well for us. We think it will continue to be an age where companies that know how to deal with online marketing and can be efficient and effective with the best sources will have an advantage. We think we have that advantage and we’re going to continue to leverage that and we’re going to continue to spend resources on it.

It is not an area where you can come in one day and be an expert at it. You have to learn through trial and error and test and lots of information and lots of data. So it is a very interesting time to watch out there. More and more clients are going online to start their search that is for sure. We are not seeing anything contrary to that because people want to have information. It is a very difficult market to understand. It is very choppy and there is lots of information. So people are saying I can go online and I can get a food feel for what’s happening. We’re seeing people more people online. It’s just about how good you can do to take care of those clients once they get there.

Jack Pitts – [Company Inaudible]

Thanks a lot. Do you have any measurement other than any hard data on what the agents I guess reverse or negative growth is on agents? It seems like agents are going down and yours are staying flat or steady I would guess the greater the rate of negative growth on that would actually be better for you with less agent competition in an inventory situation. The number of sides wouldn’t be as much a problem for you guys who seem to be a little more efficient. Is there any better way to measure that other than the AR data?

David Rector

Not that we know of. Your point is right. We don’t mind seeing the number of agents going down on our data. Most of the status notations put out information you have to go to individually. I know that [CARR] does. I know that the New Jersey Association of Realtors does. I know that the Florida Association of Realtors do. You can actually go and compile on a state-by-state basis through the local associations. And you are seeing almost exactly what you would expect. The states that have been the hardest hit are seeing the biggest declines in the number of agents right now. The states with the highest run up are the ones where you’re see more decline going on. We think that’s great. One of the problems that happened last year was there was a significant declining number of homes being sold and the number of agents stayed relatively constant. So economically we think it makes sense. We think it is a good thing that the number of agents is coming down and we’ll continue to get our share and do well. But we don’t know of any better source than those local associations.

Jack Pitts – [Company Inaudible]

Thanks guys.


With no further questions I’d like to turn the program back to Mr. Lashinsky for any additional or closing comment.

Patrick Lashinsky

Thank you all for joining us on the call. We were very happy to have gotten through 2007 and done the results that we did. We look forward to talking with you all again in May and we look forward to having a respectable 2008. Thank you very much.


That does conclude today’s conference. You may disconnect from the line at this time.

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