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Online Real Estate Sector Struggling

Posted on Thursday, Dec 20th 2007


let’s take a closer look at ZipRealty and Move.
ZipRealty, a full-service real estate site, has been reviewed here before.

On November 7, 2007, ZipRealty announced 3Q earnings with an increase of net revenues of 7% to $28.0 million, up from $26.2 million YoY. And the number of Zip Agents grew by 30%. However, the company reported a net loss of $4.8 million compared to a net income for the same quarter last year. The current loss included a one-time charge for a proposed class action lawsuit settlement.

The total value of real estate transactions closed increased to approximately $1.24 billion in the third quarter of 2007 versus $1.20 billion for the same period in 2006. The total number of transactions closed increased approximately 10.4% to 3,829 from 3,467 during the same prior year period. Average net revenue per transaction decreased approximately 3% to $7,110 from $7,332 in the third quarter of 2006.

Overall, ZipRealty was optimistic with the results because they outperformed the sector. They did indicate that they are faced with extremely difficult real estate conditions and are taking steps to lower their operating costs by $4.0 million annually. However, Zip did issue revised guidance in their earnings press release; they expected revenues for the full year to be in the range of $97.5 – $102.5 million.

Given the current housing slump, however, ZipRealty hopes to continue managing itself through its current strategy of cutting operating costs, slowing down or stalling entry into new markets, and continuing to fortify its existing market share. The targeted results are a goal of slashing red ink by 12% to 18% in the first half of 2008.

With a market cap of $128 million and almost 23.4 million shares outstanding, ZIPR is remarkably cheap. At $5/share price ZIPR has not produced much for investors lately, dropping from $8 to almost half the value over the last 52 weeks before recovering a bit today. As I have said before, this one is definitely a ripe acquisition target for an internet conglomerate looking for a cheap entry into the sector. Who would it be? Murdoch, most likely.

1 year ZIPR chart posits itself as the largest, searchable database of online real estate listings. It competes as a portal and earns revenue from advertising and commission fees. Offering services in online real estate, financing, and moving, Move markets itself as the essential research resource for anyone serious about real estate and relocation. It also owns such brands as, Welcome Wagon, SeniorHousingNet,, and Home Plans.

Q3 revenues posted at $75.6 million, a flat result compared to YoY and net income posted a $4.6 million loss, similar to ZipRealty. Despite its announced strategy, general administration costs increased slightly to $52.8 million, and even with $3.9 million in non-recurring expenses, Move still would have posted a loss for the quarter.

However, Move continues to push for market share via partnerships, the latest being renewed in December with Microsoft to provide content to the 95 million MSN subscribers. This is a nice partnership since Move will continue to be the only source of realty listing for MSN. Our prior review of Moveis here.

Unfortunately, for all its efforts, is now labeled a penny stock, trading at less than $3/share. Market Cap is $395 Million, making it the other opportunistic acquisition target for a larger player who wants an instant entry to the online real estate vertical.

1 yr MOVE chart

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