Trulia (NYSE:TRLA) has become the first stop for many home buyers and sellers, and this online real estate site wants to keep it that way. According to Bloomberg, Trulia is launching a $45 million national ad campaign this week that promises to send shockwaves through the online real estate market. Not only could Trulia profit from this marketing strategy, but the move could increase the profit gap between Trulia and its key competitors, Zillow (NASDAQ:ZG) and Move (NASDAQ:MOVE).
Why is Trulia devoting more money to its marketing efforts?
Perhaps it's no surprise that Trulia is spending more money on its marketing this year, because it has plenty of work ahead if it hopes to increase its revenues. Trulia has yet to post a profit since its September 2012 IPO , but has increased its marketing budget nearly sixfold in the hopes of capitalizing on a booming real estate market.
Freddie Mac reported last week that the average interest rate on 30-year fixed-term mortgages rose 0.74 percentage points year-over-year . While house prices fell during the Great Recession, RE/MAX found that the U.S. median house price increased 11.6 percent between January 2013 and January 2014. In addition, RE/MAX CEO Margaret Kelly noted that U.S. house sales are likely to increase over the next few months.
"The improving economy, increasing new-home construction and significant pent-up demand should all be critical factors as we move into the traditionally stronger sales months of spring and summer," Kelly said.
Increased competition among property buyers and sellers, along with more houses becoming available nationwide, will help Trulia and other online real estate marketplaces draw more traffic to their websites. If more people search for houses, and the national economy continues to rebound from the Great Recession, Trulia, Zillow and Move could boost their profits.
How do Zillow and Move stack up against Trulia?
Zillow has shown a willingness to spend on marketing in the past, which could help this real estate website keep pace with Trulia. Last year, Zillow spent about $40 million on advertising , and increased its revenue 69 percent to $198 million . With a continued commitment to marketing, Zillow could profit for the same reasons as Trulia-an improving national economy and an improving real estate sector.
Move, which operates Realtor.com and is the official website of the National Association of Realtors , is on the rise too. However, this website has yet to announce whether it will increase its marketing efforts for 2014, which could limit its profit growth.
Expect strong returns from the real estate market in 2014
Online real estate marketplaces are crucial for home buyers and sellers. These marketplaces connect both parties with one another, and enable each visitor to find exactly what he or she is looking for from any location, at any time.
Trulia anticipates strong returns from its marketing investments this year, but also could profit from its redesigned mobile apps . The ability to search for houses on the go could give Trulia a leg up on its chief rivals, and may lead Zillow and Move to unveil new apps of their own.
But investors in any of these online real estate marketplaces should expect consistent returns this year. With an increased demand for houses and a booming national economy, more home buyers and sellers could look to Trulia, Zillow and Move to conduct extensive online searches.
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Daniel Kobialka has no position in any stocks mentioned. The Motley Fool recommends Zillow. The Motley Fool owns shares of Zillow. The Motley Fool has a content partnership with Trulia. 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.