Crazy Train Leaves the Station With Trulia IPO

by Traders Reserve | September 22, 2012 11:00 am

Crazy Train Leaves the Station With Trulia IPO

trulia logo 120 Crazy Train Leaves the Station With Trulia IPOReal estate research site Trulia (NASDAQ:TRLA[1]) is a really impressive story, with growth from 2009 to 2011 heading up from $10.3 million to $38.5 million with $29 million already booked in the first half of 2012.

The majority of Trulia’s revenues come from subscriptions to real estate professionals, and with its success came the next step: in IPO. Let’s take a look:

Event

Trulia priced its IPO on Thursday at $17 per share. Investors took the bait and bid up shares another $7 to close at $24 per share on the same day giving the firm a valuation just shy of $600 million.

This was the first high profile IPO in a month and first since the Federal Reserve announced its QE Infinity fiscal stimulus program. Clearly the market was hungry for new paper. Shares traded a little lower on Friday, but its still a nice run.

Analysis

Trulia is in the sweet spot[2]. The real estate market is perceived to be on the rebound and for good this time. Home builder sentiment is high and low interest rates are here for the foreseeable future. The company has enjoyed an impressive run of revenue growth.

For the first six months of 2012 Trulia generated $29 million in sales. That said, Trulia is losing money, some $7.6 million in the first half of the year. By comparison Zillow (NASDAQ:Z[3]) generated $66 million in revenue in 2011, but is already profitable. Zillow is valued at over $1 billion and trades for 20 times trailing revenue.

Action

IPO stocks have been faring poorly of late with few exceptions. Trulia looks to be one of those exceptions. I’m skeptical, but would not fight the tape here. Let it run on the rebound in the real estate market, but look to own a put option on this one any time it reports earnings. The market is likely to be disappointed when the fantasy fails to deliver.

Endnotes:
  1. TRLA: http://studio-5.financialcontent.com/investplace/quote?Symbol=TRLA
  2. in the sweet spot: http://investorplace.com/ipo-playbook/wall-street-trumpets-trulia-ipo-trla/
  3. Z: http://studio-5.financialcontent.com/investplace/quote?Symbol=Z

Source URL: http://investorplace.com/2012/09/crazy-train-leaves-the-station-with-trulia-ipo-z-trla/
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