Zillow, Trulia, and Move.com: Which One After Earnings?

Online real estate marketplace leaders Zillow, Trulia, and Move.com had a rough earnings season, but does that mean investors should avoid them all?

Feb 18, 2014 at 6:00PM

The online real estate marketplace has had a rough earnings season, as companies Zillow (NASDAQ:ZG), Trulia (NYSE:TRLA), and Move.com (NASDAQ:MOVE) all saw significant losses following their quarterly reports. Yet, given those losses, might investors find a golden investment opportunity?

Are these businesses the same?
Zillow and Trulia operate a nearly identical type of business, serving as an online-marketplace to the real-estate market, collecting revenue mainly from realtors who advertise and gain exposure from large networks.

However, Move.com is different: The company operates a collection of Internet properties in all things real estate, including realtor.com and move.com. Unlike Trulia and Zillow, Move.com does not generate the majority of its revenue from realtor relationships, but rather advertising.

Also, Move.com operates in the software-as-a-service (SaaS) space with its customer relationship management system, called TigerLead. Looking ahead, the high-margin nature of SaaS has become a bit of a catalyst for Move.com.

A look at post-earnings performance
With that said, look at how each stock performed last week, compared to the NASDAQ.

Company

Week of Feb. 7

Zillow

(6%)

Trulia

(13%)

Move

(3%)

NASDAQ

2.8%

As you can see, it was a rough week for these companies, as each stock responded negatively to earnings.

However, Zillow beat revenue and EPS expectations and also raised guidance ahead of the consensus. Zillow's EPS of $0.19 was a $0.12 beat, and its 70% year-over-year revenue growth was a boost to the third quarter's 67% pace.

On the other hand, Trulia's $0.03 EPS was $0.04 short of the consensus, but its 141.8% revenue growth easily surpassed expectations. Yet, the fact that guidance didn't surpass expectations served as a bit of disappointment to shareholders.

Company

2014 Revenue Outlook

Implied Growth

Zillow

$290 million

48%

Trulia

$246 million

70%

Furthermore, examining each company's mid-point revenue guidance (seen above), Zillow and Trulia are trading at 10.9 and 4.55 times this year's guided sales, respectively. While Zillow has more cash on its balance sheet, operates more efficiently, and is seeing faster monthly user growth, Trulia is cheaper and growing faster.

What about Move.com?
Move.com is the other side of the equation, operating a different business model, but a very similar service. Move.com's quarter was mixed, as revenue grew just 7.1%, but its EPS of $0.11 did surprise to the upside. While Move.com is not growing at the same level as Zillow or Trulia, it is profitable and its growth in SaaS gives it a niche market that could continue to produce solid annual growth.

In particular, its SaaS business grew 12% in the fourth quarter to $12.9 million, meaning it now makes up nearly 23% of total sales, versus 18% last year. Clearly, the company hopes to make SaaS a larger chunk of the total Move.com pie. Thus, investors must determine if two times 2014's guided sales is enough to make Move.com a better investment than its peers.

Final thoughts
There's no debating that Zillow and Trulia are growing fast, but these companies are spending just as aggressively to achieve that growth, and are directly competing against each other to maintain it.

Move.com looks cheap at two times future sales, but with 70% growth and just 4.5 times forward revenue, Trulia looks better. Granted, much of Trulia's growth is occurring via the acquisition of Market Leader, but Trulia's strategy is to grow through acquisitions. Given Move.com's success, investors shouldn't be shocked if Trulia or Zillow moves into the SaaS market.

In that case, Move.com wouldn't have an edge, and with low double-digit growth, it's hard to imply that this stock has more upside than Trulia. As for Zillow, it's just too pricey. Therefore, with Trulia, investors get the best of both worlds: The growth of Zillow with the value of Move.com, clearly a win-win scenario for those looking to invest in this space.

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Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Zillow. The Motley Fool owns shares of Zillow. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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