Zillow, Move, or Trulia: Which Company Has the Most Upside Potential?

Zillow, Trulia, and Move have traded well in the last week behind bullish data, but with a large disconnect in trading over a longer period of time, is one presenting more value than its peers?

Apr 24, 2014 at 3:00PM

While most momentum stocks are attempting to recover from March's losses, shares of online real-estate marketplace company Zillow (NASDAQ:ZG) are trading at an all-time high. Meanwhile, peers Trulia (NYSE:TRLA) and Move (NASDAQ:MOVE) trade well below their 52-week highs. Given this trading disconnect, are all, one, or none of these stocks a buy right now?

A recent stock surge driven by data
In the last five days, online real estate marketplace stocks have soared considerably higher than the overall market, as seen below.

Company

5-Day Performance

Zillow

20.5%

Trulia

17%

Move

13%

S&P 500

2.6%

While this performance has been extraordinary, it's worth noting that shares of Trulia and Move are respectively 31% and 34% off their 52-week highs. Zillow, on the other hand, is trading right near that mark.

Granted, an overall market recovery in momentum stocks is likely playing a role in driving these stocks higher, combined with bullish housing data for the last month. In March, U.S. existing homes sales were 40,000 better than the consensus, totaling 4.59 million, and the average price per home rose 7.9% to nearly $200,000. Furthermore, distressed sales fell from 21% last year to 14%, which is a good indication of a healthy market and economy.

Why is housing data relevant to online marketplaces?
Theoretically, lower distressed sales and higher home prices mean better income for Realtors. And more income for Realtors equals higher advertising and better opportunities for online marketplaces. Also, better than expected sales figures should indicate strong volume in online marketplaces, which typically transfers into higher revenue via advertising and from real estate agents.

Therefore, a strong monthly sales report in existing homes is good news for Zillow, Trulia, and Move, but does this mean that all three are good investments?

Different from the pack
In looking at these three companies as investments, Zillow and Trulia are remarkably similar, while Move is unique.

Move operates through two core marketplaces, Move.com and Realtor.com, with the latter being similar to Zillow and Trulia in terms of layout. Move.com is intended to help users move from one location to another, acting as a third-party connection.

That said, Realtor.com has lost its charm due to the rise of the more mobile- and user-friendly Zillow and Trulia. Still, Move's combined sites, including smaller ones such as seniorhousingnet.com, saw monthly unique users grow 13% year over year in its last quarter.

In addition, Move's advertising business through the sites grew 6%, while its software-as-a-service segment grew 12%. Combined, Move grew 7% in its last quarter; looking ahead, analysts expect the company to grow 12.5% in 2014 as its software segment becomes a larger piece of its pie.

Growth on a different level
Move's significant stock losses have it trading at just 1.9 times sales, and because it's profitable, the stock trades at 23 times next year's earnings. Zillow and Trulia are growing on an entirely different level: The companies generate the bulk of their revenue from Realtors who advertise on their sites, making both a different business model than Move.

In addition, both Zillow and Trulia are far more expensive than Move, trading at 20 and 9 times sales, respectively, with neither being profitable. Therefore, Zillow and Trulia are an investment in the future, not necessarily in today. With that said, Trulia's 30% stock loss from its 52-week high, versus Zillow's near-20% gain in that same period, really has made Trulia the better value.

Specifically, Trulia is expected to grow 72% in 2014 versus Zillow's 50%. Trulia is growing faster, and thanks to its fall is priced far cheaper, at a 50% discount to sales.

Final thoughts
So far, Zillow has proven to be the superior investment; however, looking ahead, Trulia's performance now means it presents the better value. Furthermore, at 9 times sales with 70% plus growth, Trulia trades at a level that is very attractive in the arena of momentum stocks.

Move doesn't have the same aggressive growth, nor is it a high-profile business, but double-digit growth and a profitable company for less than 2 times sales appears to be a fairly good value. Nonetheless, much of Move's upside rests in the growth prospects of its rather small software segment. Due to this uncertainty, Trulia looks like he best investment, as it has proven quarter after quarter that its growth is sustainable and shows no signs of slowing.

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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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