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Online Real Estate Sector Update

Posted on Friday, Dec 24th 2010

The U.S. housing market is still struggling despite the lowest mortgage interest rates in nearly 60 years, with average 30-year fixed rate loan interests bottoming at 4.21% in October. But while the interest rates have eased, credit norms have become tougher. During the third quarter, 13% of bank loan officers surveyed by the Federal Reserve reported that standards had grown tighter, while fewer than 4% said standards had loosened. And, even when falling prices could have fuelled demand, expiry of the home owner tax credit and the legal battle over the process of repossessing foreclosed properties has further dampened the market. Unemployment rates remain high; according to the U.S. Bureau of Labor Statistics, the national jobless rate increased marginally to 9.8% in November, and this isn’t helping the market, either.

Move’s Financials
Move (NASDAQ:MOVE), the online realtor, saw Q3 revenues fall to $50.3 million from $52.9 million reported a year ago. Earnings also fell to 12% compared with 13% a year ago.

Move continued to remain the market leader in unique users and total engagement. In September, their network attracted 13.4 million unique users who spent more than 240 million minutes on their network.  Visitors to the Move Network viewed more than 400 million pages, more than the next four competitors combined.

For the current quarter, Move expects revenues of $49.0 million–$50.0 million with adjusted EBITDA margin of 12%. For 2010, they are projecting revenues of $198 million with an adjusted EBITDA target of 11%.

Move’s Mobile Solutions
Despite the gloomy outlook, Move continued to invest in mobile solutions. They recently launched Realtor.com’s Android app and also released it on Windows Phone 7. Earlier this year, they had launched the iPhone app for Realtor.com. The app has been downloaded more than 2.5 million times with users viewing approximately 8 million Listing Detail Pages.

Move’s New Proprietary Database
During the quarter, Move also released FIND, a new proprietary database for real estate professionals and multiple listing services (MLS). The new search engine helps real estate professional provide subscribers with a faster, simpler, and more flexible access to their data and Move’s real estate content. FIND subscribers also have access to active listings and additional status information from other MLSs using the FIND application.

The stock is trading at $2.69 with a market capitalization of $426 million. It touched a 52-week high of $2.89 earlier this month.

ZipRealty’s Financials
For Q3, online realtor ZipRealty (NASDAQ:ZIPR) saw revenues fall 20% over the year to $28.3 million, attributed primarily to the absence of the homeowner tax credit. Loss for the quarter increased significantly to $0.25 per share from $0.04 per share reported a year ago.

The total value of real estate transactions closed also fell to $1.2 billion compared with $1.5 billion a year ago. The total number of transactions closed in the quarter fell to 5,080 from 6,557, translating to a 0.5% increase in net transaction revenue per close to $5,308 from $5,284 in the previous year.

For the full year, ZipRealty expects net revenues to decline in the  mid-single digits over the previous year with net loss and for the year to be bigger than the 2009 loss.

ZipRealty’s Focus on Costs
Given the current depressed market conditions, the company is focusing on controlling costs and improving margins. They initiated movement to an independent contractor based model earlier last quarter in California and are now implementing it across the country. The transition will impact over 3,300 agents and will save the company the cost of operating benefits packages for these employees.

The stock is trading at $2.74 with a market capitalization of $56 million. It reached a 52-week high of $5.47 in March of this year.

Meanwhile, other private players are also advancing their positions in the market. According to comScore’s September data, Zillow and Yahoo! Real Estate boasted of 14.5 million unique visitors to their network with Zillow, by itself, accounting for 7.6 million unique visitors. In fact, according to Hitwise, for the week ended December 18, Move’s biggest asset, Realtor.com, lost their market leadership to Yahoo! Real Estate. Realtor is followed by Zillow and Trulia as ranked by the number of visits in the week.

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