Can Trulia’s IPO Match Rival Zillow’s?

Home listing syndicator Trulia filed its S-1 Registration Statement with the SEC Aug. 17, a little over a year after Zillow (NASDAQ:Z), its biggest competitor, went public. Could Trulia’s IPO plans be an indication the real estate market is on the mend?

That’s hard to say. What we do know is that the San Francisco-based company will likely garner a great deal of press as it prepares for its IPO sometime in late in 2012 or early 2013. Should investors be interested in owning Trulia’s stock? Let’s take a look.

Proponents of Trulia’s stock will point to the success of Zillow’s IPO as a major reason for buying into its public offering. Zillow originally priced its stock between $12 and $14, ultimately going out at $20 a share. That brought in $66.5 million in net proceeds, which the company used for general corporate purposes. None of its pre-IPO shareholders sold any stock in the offering. In fact, Technology Crossover Ventures and PAR Investment Partners actually bought more through a concurrent private placement.

IPOs tend to underperform in the first 18 months as public companies. However, Zillow’s stock gained 79% in the first day of trading in July 2011 and 6% since for a total return of 89.7% over 13 months. I couldn’t say empirically, but the fact that all of the proceeds went to the company and not the existing shareholders suggests the IPO was structured to maximize the benefit to the company and shareholders were rewarded for their commitment.

According to Trulia’s S-1, it has made no indication that any of its shareholders intend to sell into the IPO, but we’re still in the early stages. If it’s smart, it will do exactly as Zillow did.

Trulia believes that its business is different from Zillow’s, and the statistics about its visitors lends credence to this claim. In the first six months of 2012, 56% of its 22 million monthly unique visitors did not visit Furthermore, Trulia believes that its customers are far more ready to buy than Zillow’s, with 76% contacting real estate professionals indicating a willingness to act within six months.

Trulia’s value proposition to real estate agents, it believes, is far greater. In addition, the Chicago Agent Magazine did a comparison of the two sites along with in October 2011 and found that Trulia’s was much easier for consumers to use than either Zillow or Anyone who’s used Trulia to successfully buy a home will likely have some interest in its IPO.

A big issue facing Trulia as it seeks to go public isn’t the fact real estate agents continue to disagree about whether Trulia and Zillow and other real estate listing syndicators are helping or hindering their ability to sell homes. Rather it’s whether  it can catch up to Zillow in the all-important mobile market, where Zillow has a huge lead. In July, Zillow visitors viewed 168 million homes on mobile devices.

Further, Zillow announced in the first quarter that more homes were viewed on mobile devices than desktops. So how much does Trulia have to catch up? At the end of June, it had 4 million mobile monthly unique visitors. Zillow doesn’t make that number publicly available. However, using a completely unscientific calculation of homes viewed on a mobile device versus a desktop, I arrive at a figure of approximately 16 million mobile monthly unique visitors. Keep in mind that this calculation is a very rough estimate that doesn’t take into account the complexity of Zillow’s business model. Regardless, the deficit between the two is significant.

Trulia’s biggest problem is profitability. In many ways, the two companies are very similar. However, if you examine their financials for the first six months of 2012, there’s no comparison. While Zillow generated an operating profit of $3 million on revenue of $50.6 million, Trulia managed an operating loss of $6.8 million on revenue of $29 million.

Both grew revenues by around 80% year-over-year, but while Zillow was increasing its operating profit by 324%, or $2.3 million, Trulia was going in the other direction, losing $6.8 million from operations, or 166% more than in the first six months of 2011.

To be fair, we are comparing a post-IPO Zillow with a pre-IPO Trulia. Assuming it’s able to raise $75 million, that would obviously affect how its business performs in the future.

Therefore, I’ve gone back and looked at Zillow’s six-month numbers immediately preceding the IPO in July 2011. Comparing them with Trulia’s numbers to the end of July 2012, the situation’s no different. Zillow took a $4.8 million operating loss for the first six months of 2010 and turned that into a profit of $707,000 on revenue growth of 114%.

At the end of the day I just don’t see Trulia’s IPO doing as well out of the gate because unlike Zillow, the profitability question is still a big concern.

As of this writing, Will Ashworth did not own a position in any of the stocks named here.

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