3 Housing Dot-Coms Under Construction

If you believe in the Internet as a powerful medium that can make even bad sectors look good, you haven't stepped into the muck of dot-com housing plays lately.

It's not pretty, my friend. Growth has turned into stagnancy. Profits have turned into losses. Darlings have turned into goats.

Sure, you have a few companies that are bucking the trend. LoopNet (Nasdaq: LOOP) is doing great, though the leading commercial real-estate marketplace is riding the steadier market in corporate buildings rather than the debacle in residential housing.

Over the past few days, several Internet companies that once had promising futures in hooking up prospective homebuyers with anxious sellers have chimed in with their quarterly reports. It's not necessarily bleak, even if they're all trading in the single digits.

Let's check in on them before I spring a surprising stat on you that may find you warming up to these dot-com laggards.

ZipRealty (Nasdaq: ZIPR) at $5.74
Housing downturn? What housing downturn? The online-spiked real estate brokerage saw third-quarter revenue climb 7% higher to $28.0 million. Last night's report may hint at growth, but let's dig a little deeper into the numbers.

ZipRealty posted a $0.02-per-share pro forma loss during the quarter, reversing a small profit a year earlier. The top-line growth? It's the result of a rapid expansion into new territorial markets. The number of ZipAgents at the company actually grew by nearly 30% to 2,263. Yes, revenue grew a lot slower than the company's manpower. That's the housing slump for you. The ZipAgents combined to produce a 10% uptick in the number of homes sold, but net revenue per transaction dipped by 3%.

The company is doing what it can. It's cutting expenses. It's also holding back on diving into new markets until it can fortify existing ones. ZipRealty is looking to post a pro forma loss between $0.35 a share and $0.44 a share this year on $97.5 million to $102.5 million in net revenue. It's then looking to slash the red ink in half in 2008 on a 12% to 18% gain in revenue. That's ambitious, especially given its stance on holding back on geographic expansion until the housing market bounces back.

Move (Nasdaq: MOVE) at $2.69
The parent company of Realtor.com has now become a penny stock, trading for less than $3 a share. Despite a name change to emphasize its non-Homestore businesses, including rental and moving-service websites, the company is caught up in the housing industry's holding pattern.

Total revenue was flat at $75.6 million during the third quarter. As with ZipRealty, a small profit a year ago was transformed into a small deficit this time around. Move lost $0.03 a share during the period. The company notes that it would have actually posted a profit if you backed out stock-based compensation and a series of one-time charges, but you don't become a penny stock unless you're falling out of favor.

HouseValues (Nasdaq: SOLD) at $3.92
The lead generator for realty professionals looking for prospective home sellers to land as listings is probably in the sorriest shape of the three. Revenue fell by 35% to $13.8 million in its latest quarter. The company didn't have a profit to reverse a year ago. It simply doubled its loss from continuing operations to $0.04 a share.

The company's namesake model is practically obsolete, given the popularity of sites like Zillow that will spit out house value estimates without sucking you dry of personal information that it hands to a paying broker. Sure, a professionally prepared assessment from a local and knowledgeable broker is superior to the painless Zillow guesstimates, but watching the top line shrivel and the bottom-line deficit widen proves that I'm not the only one who never warmed up to the model.

The silver shingle lining
If the three open houses aren't all that inspirational, maybe the balance sheets will cheer you up. See, all three companies have balance sheets that are flush with greenbacks. Things may not be going very well at the moment, but as long as the companies are able to preserve greenbacks beyond timely share repurchases, investors could do worse than wait for a recovery in stocks trading so close to their cash cushions.

In short, these may be ugly homes, but they're cheap and they have strong foundations. Investors who relish fixer-upper market opportunities might find something worth pursuing.

Again, these cash mattresses will deflate fairly quickly if cash flow turns negative over the next few quarters. Even the most ardent housing bull doesn't see a recovery for several more quarters.

However, keep in mind that Internet stocks don't need a tangible turnaround to start growing again. ZipRealty noted during last night's call that its site is pulling record traffic. If they're not buying, they're at least looking.

So hold your head up, bulls. Web-based brokers like ZipRealty and IAC's (Nasdaq: IACI) RealEstate.com -- which will soon join these Internet housing plays as its own public company -- can grow at the expense of slower-footed offline rivals. If a company like Bankrate is cashing in on desperate financial institutions trying even harder to stand out to land quality leads, why can't HouseValues follow suit in residential realty? And Move -- there are clearly worse things than flattish results. Let's hope that the next "move" will be out of this embarrassing penny-stock territory.