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Online Real Estate Snapshot: Building a Home in Cyberspace

This article is part of our Subprime Survival Guide.

This isn't a great time to be a homebuilder. When even the inspirationally upbeat National Association of Realtors declares that 2007 will be the first year with a national dip in home prices since the Great Depression, it's only natural to fear the worst.

However, the same can't be said for companies with a dot-com foothold in real estate. From online brokerages that are expanding while their offline peers scale back, to a thriving marketplace enabling commercial real estate transactions, there's still hope in cyberspace.

Let's look at some of the major players' strengths and weaknesses:

Company Name

Market Cap

P/E

Change from 52-week high

HouseValues (NASDAQ:SOLD)

$123.1 million

n/a

(59.3%)

MOVE (NASDAQ:MOVE)

$785.3 million

48.0

(27.7%)

IAC (NASDAQ:IACI)

$11.0 billion

70.5

(6.0%)

ZipRealty (NASDAQ:ZIPR)

$160.2 million

n/a

(27.6%)

LoopNet (NASDAQ:LOOP)

$614.4 million

40.1

(18.6%)

Zillow (privately held)

n/a

n/a

n/a

Data provided by CapitalIQ.

HouseValues

  • CAPS rating: *
  • Strategy: HouseValues.com is a website designed to provide leads to real estate agents by having prospective home sellers fill in online forms to have their homes appraised. Its newer HomePages.com site showcases Realtor listings on a map.
  • Key markets: Real estate professionals who will pay for extra leads, and information-hungry home sellers and buyers.
  • Outlook: HouseValues has hit a rough patch lately. It recently exited the mortgage business to focus on its residential real estate stronghold. After initial profitability, HouseValues posted a loss last year. It's expected to stay in the red until at least 2008. The company's healthy cash balance will see it through, though its model has been as exposed as shaky. Realtors are hungrier than ever for leads, but the company's not thriving; consumers are fancying less intrusive sites like HomeGain and Zillow to get initial reads on what their homes are worth.

MOVE

  • CAPS rating: *
  • Strategy: Formerly the scandal-riddled Homestore.com, MOVE operates several housing sites including Realtor.com, HomeInsight, Moving.com, HomePlans.com, Top Producer, and the Welcome Wagon service, which provides sponsored offers to new homebuyers.
  • Key markets: The popular Realtor.com has more than 3 million home listings on its site. MOVE's emphasis may seem to be on the consumer's need to find new homes (to rent or buy), architectural blueprints for new construction, or moving-related services, though naturally they all result in leads for the eventual providers.
  • Outlook: Revenue and profits were higher for MOVE in 2006. Analysts expect growth to continue. MOVE's diversified reach has allowed it to tap into the steadier rental and relocation markets, helping to offset the weakness in mainstream home buying.

IAC/InterActiveCorp

  • CAPS rating: ***
  • Strategy: IAC is better known for its non-realty businesses like Ticketmaster, Home Shopping Network, and the Ask.com search engine, yet IAC has its fingerprints all over the real estate industry. In addition to RealEstate.com, it owns HomeLoanCenter, Lending Tree, and Service Magic. 
  • Key markets: IAC's realty-based sites serve as Lending Tree subsidiaries, indicating that its strength lies in hooking up homebuyers with mortgages. However, ServiceMagic is a popular lead-generating service for home-improvement contractors.
  • Outlook: RealEstate.com is beginning to inch its way into the residential brokerage business. It entered the Portland and Denver markets last May, yet it still counts nearly a quarter of the 500 largest real estate brokerage firms as members of its network. IAC's financials are strong -- and growing -- above and beyond its real estate aspirations. The company generated $130.7 million in lending, real estate, and home services revenue last quarter, just 7% of the company's total revenue pie.

ZipRealty

  • CAPS rating: *
  • Strategy: ZipRealty is hoping that the public is sick of the 6% solution. As old-school outfits like Realogy (NYSE: H  ) rely on charging home sellers 6% of the final selling price in commissions, ZipRealty charges as little as 4.5% to 5% in commissions. ZipRealty will also reward buyers with 20% of the commission it's set to receive. More than just a discounter, ZipRealty's strength lies in its Web savvy. It's turned heads with some of its techniques -- like allowing folks to post property reviews on listing pages -- but that Web 2.0 tactic is now being aped by Zillow.
  • Key markets: ZipRealty is still expanding into different metropolitan markets, but it clearly attracts thrifty online users.
  • Outlook: Of all of the public companies in this profile, ZipRealty is the only company not expected to improve on its bottom line in 2007. However, the deeper deficit results from the company's decision to introduce its brokerage services into eight to 12 new markets this year. So ZipRealty still expects to grow revenues by 10% to 15%, despite the wobbly-kneed nature of the residential real estate market.

LoopNet

  • CAPS rating: *****
  • Strategy: Commercial real estate has held up better than the residential market, and LoopNet shareholders are grateful for that. The site boasts $395 billion worth of properties on its site for sale, and 3.2 billion square feet of lease space. It's attracted nearly 2 million members to an online marketplace that's as close as you can get to the eBay of commercial real estate.
  • Key markets: Commercial real estate, of course.
  • Outlook: LoopNet is on a roll. Revenue soared 52% last year, and the company expects its top line to surge 34% to 37% this year. Earnings won't grow as quickly, yet the Rule Breakers recommendation recently guided 2007 profit guidance higher, to a range of $0.42 to $0.45 per share.

Zillow

  • CAPS rating: N/A
  • Strategy: Privately held Zillow rocked the world as a consumer-friendly site providing rough -- occasionally quite rough -- home valuation estimates, without prying for user contact information. The company claims to be drawing more than 4 million unique visitors a month, checking out the more than 70 million homes in its database.   
  • Key markets: Of all of the real-estate-related sites, this one often appeals to folks with no intention of giving up their homesteads. They're mainly curious to see what neighboring homes would fetch, and to track the estimate -- the Zillow-branded "Zestimate" -- of their own place's value. Features like "Make Me Move," where homeowners can enter prices which would prompt them to sell, are unrealistic, but still add to the recreational flavor of the site.
  • Outlook: The recent transformation of Zillow is making the site more Realtor-friendly. Realtors and real estate agents are now encouraged to include their listings on the site, participate in ongoing property discussions, and pay for targeted ads by ZIP codes to reach a wider audience. According to Zillow, 150,000 real estate agents visited the site last month. If the market climate improves, an IPO is more than likely.  

Homepage, sweet homepage
There's clearly a disconnect between homebuilders and the websites that thrive on real estate transactions. Nearly every single land developer is expected to post a slide in profitability this year. Wall Street is more upbeat when it comes to virtual land development. Every public company here, save for ZipRealty, is projected to improve its bottom line. And ZipRealty's wider deficit owes to aggressive market expansion.

From a website that specializes in commercial transactions to those that bank on generating leads for providers of home equity loans, property listings, and moving services, this is a dynamic space. And I've just touched on some of the more logical plays. Obviously, there are plenty of real estate deals being struck through sites like eBay and Craigslist, along with other promising but still private sites like Zillow.

Realtors may be bracing themselves to suffer this year, but the open houses in cyberspace are really just getting started.  

Related Foolishness:

HouseValues is a Hidden Gems stock pick, while LoopNet is a selection in the Motley Fool Rule Breakers research service. eBay is a longtime scorecard favorite in the Motley Fool Stock Advisor community. You can check out all of the three services with free 30-day trial subscriptions. Consider it a very long, and enlightening, open house.  

Longtime Fool contributor Rick Munarriz loves to visit real estate sites, even when he's not in a mood to buy or sell. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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Rick Munarriz
TMFBreakerRick

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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