by Tom Taulli | February 14, 2014 11:19 am
In their latest earnings reports, both Trulia (TRLA) and Zillow (Z) showed some weakness. TRLA stock took the biggest hit, though — down about 17% in today’s trading. But even Z is down a tough 7%.
So is this really a temporary setback for the online real estate business? Or is there something more troublesome brewing?
First, let’s take a look at TRLA stock. In the quarter, revenues soared by 141% to $49.73 million and adjusted earnings came to 3 cents per share. Those numbers fell short of analysts’ consensus of $49.4 million and profits of 7 cents per share.
While those numbers weren’t good, the outlook was even worse — and was likely an issue for the awful performance in TRLA stock. For the first quarter, the company is forecasting revenues of $53.1 million to $53.5 million. True, this was in line with the Street estimate of $53.1 million. But investors were probably hoping TRLA stock would be show more momentum.
Looking deeper into the earnings report though, there are lots of encouraging trends, which should help provide some fuel for TRLA stock. Traffic growth has remained strong, with a 49% jump to 35.3 million MAUs (monthly active users) in Q4. Of this, about 14.3 million came from mobile sources.
Another nice driver for TRLA stock has been the strong monetization. By the end of 2013, the company had nearly 60,000 subscribers, up from 24,000 at the end of 2012 (these are real estate professionals who pay for services and leads). Keep in mind that there was a nice bump from the acquisition of Market Leader, which is a provider of enterprise software to large brokers.
OK, then what about Z stock? In Q4, revenues jumped by 70% to $58.3 million and earnings came to 19 cent per share. Both figures managed to beat analysts expectations — revenues were expected at $54.4 million, and analysts were looking for profits of 7 cents per share.
But again, the outlook was on the light side, which was probably why Z stock felt some pressure. For Q1, the company says it will generate EBITDA of $4 million to $4.5 million, which is significantly off from the $10.6 million Street forecast. But then again, revenues are expected to range from $62 million to $63 million, versus the consensus of $60.6 million.
A key to the company’s success — and the strength of Z stock — has been a focus on innovation. For example, it launched a feature to measure the cost of home ownership, which goes beyond the typical mortgage calculators. It includes such factors as monthly expenses (say for cable and home security) and property taxes.
And yes, Z stock has also gotten a boost from mobile. Keep in mind that there are now 27 apps across all major platforms like Apple’s (AAPL) iOS, Google’s (GOOG) Android and Microsoft’s (MSFT) Windows system.
OK, given all this, which one looks better: Z stock or TRLA stock? Right now, Z stock looks like the better option for investors. Granted, both companies are solid operators, but Zillow seems to have a more well-known brand. And branding is crucial in the early stages of a new industry.
Just some things to note: According to comScore, Zillow has about double the traffic of its two closest competitors. Oh, and in terms of mobile traffic, it gets four times the traffic of the No. 3 player and more than double the No. 2 player (based on the analysis from Experian).
Aggressive marketing has been critical to that success, particularly television commercials. Last year, the total budget for ads came to about $40 million. As for 2014, the company plans to increase it to $65. TRLA, on the other hand, will be playing catch up as it will begin its television campaign this year, with a budget of $45 million.
Again, both TRLA stock and Z stock should benefit from the megatrends of mobile — and the changes in how consumers buy and sell homes. But for now, Zillow has a chance to build a top-of-mind brand in the category, which could be essential for long-term growth.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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