3 Things You Need to Know About Zillow's Acquisition of Trulia

The two similar real estate portals are to combine into a single entity. Here are three important points about the merger.

Aug 20, 2014 at 8:00AM

If not quite a merger of equals, the recently announced buyout of Trulia (NYSE:TRLA) by Zillow (NASDAQ:ZG) is a fusing of two firms with matching business profiles. Both are online real estate marketplaces featuring a host of properties for rent or sale, and both make the bulk of their money from the brokers pushing some of those homes.

The synergistic effects of a tie-up are obvious, and it's clear why Trulia is ponying up for the purchase. Let's take a look at a few key features of the deal, and see how and if shareholders will benefit.

Cashless transaction
Zillow won't have to part with any dollar bills for the deal. It's spending around $3.5 billion worth of its stock to acquire Trulia. The latter's shareholders will receive 0.444 shares of Zillow for every Trulia share they hold, while Zillow stockholders are to receive one comparable share of the combined company.

After all that stock changes hands, Zillow estimates that its current shareholders will own around two-thirds of the new entity, with today's Trulians taking the remainder.

At $3.5 billion, Zillow is paying approximately 13 times the average analyst estimate for Trulia's fiscal 2014 revenue, and 10 times anticipated 2015 top line. There's no equivalent for bottom line, as (like its would-be owner, of late) Trulia is unprofitable.

The peak of the market
Zillow, which apparently had Trulia in its sights as far back as 2006, picked an ideal time to strike a deal fueled by stock. Its shares hit an all-time high of just over $160 apiece on the day the acquisition was announced.

But that wasn't the only peak in the neighborhood. It just so happened that Trulia's stock had also scaled its historical summit, touching $65 the same day.

After the deal was announced, however, those lofty stock prices fell earthward. These days Zillow can be had for around $139 per share, while Trulia hovers around $59. This despite strong, estimate-beating Q2s reported by both companies in the wake of the deal's announcement.

So current investors, it seems, aren't convinced by talk of a bright, shared future for the two companies. Perhaps that has something to do with the fact that ...

The two brands will remain separate
In a brief letter to "certain industry partners" filed with the Securities and Exchange Commission by Zillow, the company promises to keep both it and Trulia's brands alive. 

This, Zillow claims, is because the two "have large and loyal consumer followings with limited overlap." 

That may be the case, but zooming out a bit it's apparent that many of those followers are free riders. According to Zillow's data, Zillow and Trulia's combined revenue accounts for less than 4% of the roughly $12 billion real estate professionals spend annually on marketing their properties to potential buyers. 

Zillow/Trulia hopes to raise that number by spreading its message wider. In the letter, Zillow said the combined entity will "allow for better coordination among our brands when it comes to listing information." It can bring Trulia listings to the popular online destinations like Yahoo! Homes, AOL Real Estate, and Microsoft offshoot MSN Real Estate that it currently utilizes.

The Foolish takeaway
The marriage of Zillow and Trulia is akin to hearing that two friends with similar personalities, interests, and habits have decided to wed. It's understandable that the two would want to coexist and operate under the same roof.

However, neither firm has yet proven that it can turn a profit, and they operate in a business stuffed with a host of competing sites -- Redfin, for one, is a brokerage site that enjoys plenty of traffic, while Realogy's (NYSE:RLGY) recently acquired ZipRealty also features plenty of properties for those shopping for a home.

So although the acquisition is a logical move, it's not necessarily a beneficial one. Real estate is a tough segment to succeed in, no matter how compatible and determined a partnership might be.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Yahoo and Zillow. The Motley Fool owns shares of Microsoft, Yahoo, and 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information