Has the Most Attractive Online Real Estate Marketplace Investment Become Obvious?

Using stock performance as a way to identify the best investment opportunity, Zillow (NASDAQ: Z  )  looks far better than Trulia (NYSE: TRLA  ) . However, in this particular space, which includes Move (NASDAQ: MOVE  ) as well, which is really the best value?

The basics
Zillow and Trulia are both online marketplaces for the real estate industry, and create the majority of their revenues by selling marketing and premier services to realtors. Move operates a similar platform, but sells traditional advertisements instead, and software-as-a-service.

For the better part of 2014, Zillow has been a solid performer, with its stock higher by more than 80%. Trulia's 20% gains have lagged peers, although it's hard to identify a reason for the disconnect.

Which is performing best?
From an operational standpoint, the two companies are very similar, although Zillow is larger. For example, Zillow ended June with 83 million users, far more than the 53 million that Trulia had at the end of that same month. Examining these metrics from a year-over-year growth perspective, Trulia's 55% increase outpaced Zillow's 49% user growth.

With that said, Trulia is outperforming Zillow on many different fundamental metrics, mainly revenue growth. Looking ahead to the next two years, Zillow is expected to grow revenue by 57% and 35%, respectively. Meanwhile, Trulia should grow 76% and 32%, respectively, during the same two-year period.

Granted, Zillow's operating margin of negative 8% is far more attractive than Trulia's negative 17%. However, in this particular case, profitability is not the catalyst. Instead, investors are more concerned with both companies' ability to produce lavish year-over-year revenue growth, and are investing in the future of these companies, rather than the present.

Which is best?
The argument over which stock is the better investment was, at one time, a fair dispute, but has since become clearer in recent months. With that said, this does appear to be a two-horse race, as Move's Realtor.com site has taken a backseat to both Zillow and Trulia.

While Move's Realtor.com has more than 30 million monthly users, it lacks explosive year-over-year growth. This puts Zillow and Trulia front-and-center.

Albeit, profitability is not really a concern at the moment, but clearly Trulia is growing much faster. Yet, despite faster growth, it's also a much cheaper stock. Considering 2015's revenue expectations, which is when growth should slow to the 30% range, Zillow is still trading at a whopping 12.4 times forward sales while Trulia trades at a much more manageable 4.6 times sales.

For two stocks whose valuations are largely tied to revenue growth, this disconnect in price times forward sales is a great indication that Trulia now presents far more investment value.

Is there any value left in Zillow?
At 12.4 times next year's sales, Zillow's upside is limited by itself. However, there is acquisition value if the company decides to make a bid for Move. For most of 2014, Move has been speculated as a likely takeover target, and after Trulia acquired Market Leader, it doesn't really have the cash left to make such an offer. However, Zillow with a $5 billion market capitalization does have the leverage, which could be good for the company's investment value.

Specifically, by excludeing Market Leader from Trulia, its user growth is increasing at a rate of 30%. However, Market Leader has not only added additional users to its platform, but has also given the company more monetization tools.

For Zillow, the same scenario could apply if it acquired Move. With an additional 30 million users, its Premier Agent marketing services would appear that much more attractive. While the stock remains pricey, both with or without Move, this acquisition could, in the least, make Zillow more attractive to the long-term investor.

Foolish thoughts
With all things considered, Trulia operates the same kind of platform with similar monetization tools as Zillow, yet trades at one-fourth the market capitalization. From a price multiple perspective, Trulia's valuation is not obscene, especially when you consider the company's growth. However, due to Zillow's stock gains in 2014, the same can't be said for it, thus implying that Trulia is the best option for investors who want exposure to this space.

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