Last Friday, competition among real estate tech companies heated up. Trulia filed for a $75 million IPO, a sum that could give this website the funding it needs to take on market leader Zillow
Online real estate 101
If you've never heard of Zillow, Trulia, or Move, you're missing out on an emerging sector that could run the real estate market in the next five years. These companies use the Internet as a platform to connect buyers (home buyers or renters) with sellers (home sellers, landlords, or real estate agents) and lenders (banks and mortgage lenders). The company provides each group with all the information they need to make the best possible business transaction, and then provides them with a simple process for making that transaction a reality. For a visual explanation, check out this video.
The numbers that matter
Image is everything, and Trulia's website visits send mixed messages. Although Trulia's unique visitors have tripled in the past three years, Zillow has grown slightly faster and now enjoys almost 10 million more website visits per month than Trulia. Move's
Source: Author, data from Trulia S-1, Zillow 10-K, realtor.org.
Given what we know about these companies' website visits, their sales growth should come as no surprise. Zillow and Trulia have doubled sales each year for the past three years, but the laws of compounding multiples have Zillow ahead by $20 million in 2011. Although Move has a massive monetary head start on these two startups, it's headed in the opposite direction with falling sales every year.
Source: Author, data from Trulia S-1 and Yahoo! Finance.
The budget line that most impressed me in Trulia's financials was R&D spending. Zillow spent 44% of its revenue on R&D in 2009, but only 18% this past year. Move has consistently tucked away about 15% of its sales into R&D. Trulia, on the other hand, is still pouring funding into R&D and outspent Zillow by $4 million in 2011.
Source: Author, data from Trulia S-1, Zillow 10-K, Move 10-K.
Partner up!
The real estate advertising business is estimated to be valued at $6 billion, and it's unlikely that any one corporation will beat out the rest without some help from outside sources.
In February 2011, Zillow teamed up with Yahoo!
Move's claim to fame is its title as the "official website of the National Association of Realtors." Of course, nobility doesn't always guarantee success (just ask King Louis XVI), so Move is hedging its bets with joint ventures intended to enhance its mortgage and homebuilder services.
For now, Trulia seems to be going solo. Instead of partnering with any larger organizations, the company is trying its hand at grassroots marketing through a dozen or so blogs covering everything from celebrity homes to real estate agent advice columns.
My take
These three players are currently the three musketeers of online real estate, but this lucrative sector will undoubtedly see more competition as it continues to grow. Google
I don't see Move as a threat unless it gets serious about makings its larger budget count for something. Trulia's smaller than Zillow, but it's got teeth. It's stepped up its R&D to take back some of Zillow's market share and if it can consistently increase site traffic at a faster rate, it stands to come out ahead. Otherwise, Trulia's piece of the pie will continue to shrink thanks to Zillow's ever-growing network effect.
When Trulia has its IPO, I won't be buying, but I'll be watching. I've made an "underperform" CAPScall for Move and an "outperform" CAPScall for Zillow on my Motley Fool Caps page, but I'm undecided on Trulia's ultimate success or failure.
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