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Internet Stocks: ZIPR, MOVE, NILE

Posted on Monday, Nov 10th 2008

The tightening of the credit markets has had an impact on consumer behavior not only across the United States, but across the globe as well. Not surprisingly, it has had a more pronounced effect on the purchase of real estate since the housing crisis is what spawned this mess.

Last week, two online real estate players, ZipRealty (ZIPR) and Move (MOVE) announced rather depressing quarterly results.

ZIPR’s Q3 revenues of $31.4 million represented 11.9% annual growth but failed to meet the market’s expectations of $33.2 million. Their loss per share of $0.03 also missed the Street’s expectations of earnings of $0.04. A year ago, the loss was $0.02 per share.

In some of their key metrics, ZipRealty’s agent base grew by 24% over the year to 2,814. They closed $1.36 billion worth of transactions, recording a 9% increase over the year, while the total number of transactions increased by 31%. Though the average net revenue per transaction decreased by 14% to $6,130, the trend does signify the increasing popularity of the online model.

The company revised down their revenue guidance to $107-$109 million for the year with a net loss of $0.41-$0.45 per share.

The stock had slipped to an all-time low of $2.28 last month end and has since recovered marginally to trade at $2.64 at present. At its current price, with a market cap of just over $53 million, ZIPR would be a great acquisition target for McClatchy, The New York Tines Company or Yahoo!, to help these companies get into the real estate sector.

The other online real estate stock worth mentioning is Move. During the quarter, their revenue of $61.2 million was marginally short of the market’s expectations of $61.7 million and represented a 19% y-o-y decrease. They reported a $0.00 EPS compared with a loss of $0.01 the previous year. The market was also looking for a breakeven EPS this quarter.

By segment, Real Estate Services revenue declined 3% from the previous year, but was relatively flat sequentially. However, Consumer Media revenue was down 9% from the previous year.

When most companies are focusing on cost reductions, Move has spent enough resources in rolling out their new, improved website, which takes into account customer feedback and claims to deliver “a consumer experience that addresses the needs of all our audiences”. Their aim is to provide the best online real estate search experience, deliver unique proprietary content to extend their relationship with consumers and convert them into recurring users, and understand consumer behavior and intent so as to improve the relevance and effectiveness of their advertising.

Additionally, they are looking at cost reduction efforts estimated at $20 million for the next year.

The stock is trading at $1.49, after having recovered marginally from its five-year low of $1.07 earlier last week.

At its current price, it continues to remain a good acquisition target for an Internet conglomerate.

Big-ticket discretionary purchases like jewelry have been hit hard by market conditions and declining consumer confidence, as was evident in Blue Nile’s Q3 results. Revenue for the quarter fell to $65.4 million, missing the market’s expectations of $68.5 million and decreasing 3% over the year. Compare that with overall Internet jewelry sales, which decreased 11% over the year. EPS of $0.15 also missed the market’s expectations by a cent and recorded a y-o-y reduction of 17%.

Total orders reduced by 6% over the year, while the average selling price per order increased 3.1% to $2,159. International sales grew at 53% over the year while the sales in the US reduced by 7% over the year.

Earlier this year, Blue Nile had warned the market about the increase in raw material costs. Yet, the current diamond prices have taken them by surprise. Diamond prices have increased by an unprecedented 20% over the year. The spreading recession and the fact that increases in international buying power declined by a similar percentage with respect to the strengthening dollar resulted in a sharp increase in international jewelry prices as well.

Given that the brick and mortar jewelers have to carry more inventory, Blue Nile’s management expects consolidation of some of the weaker players, giving them more market share in return.

Blue Nile continued with their earlier objective of improving the customer experience by re-launching their diamond search functionality with a “number of user interface best practices that provide contextual education to assist consumers in selecting the perfect diamond.” However, they missed out on the personalization aspect, again.

Though they did not quantify it, Blue Nile did say that they were seeing growth in the non-engagement business category, implying that they are finally getting to the up-sell strategy. Results are not yet visible to conclude anything substantive.

In line with international expansion, Blue Nile is planning to improve their customer experience with language and currency localization, along with the expansion of their product range.

The stock had slipped to a two-year low of $23.04 last month, and has recovered since, to trade at $25.45. With its model and capabilities, the stock continues to remain one that ought to be on the radar of both investors and acquirers.

This segment is a part in the series : Internet Stocks

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