Home Site Trulia's Stock Rocking Real Estate Recovery


Real estate website Trulia had plenty to celebrate on the one-year anniversary of its initial public offering, with its shares surging more than 180% since their trading debut and the company posting its first profitable quarter.

Whether its next anniversary will be as upbeat may depend largely on whether looming interest rate hikes curb homebuying.

Trulia's ( TRLA ) website, Trulia.com, provides online tools that offer homebuyers, sellers, owners and renters information on properties and real estate professionals.

The site helps buyers find prospective homes by enabling them to narrow their search to meet their needs, including location, the number of bedrooms and price.

Real estate agents buy subscriptions to help them offer their services directly to buyers and sellers.

Housing demand has recovered slowly from a stunning downturn as economic growth, lower unemployment and rising home prices have helped restore confidence.

By The Numbers

Trulia's financial results reflect that demand. Since its stock debuted on the NYSE on Sept. 21, 2012, it has produced three full quarters of 75% or better sales growth.

The company posted its first quarterly profit on July 31, surpassing analysts' forecasts. Paid subscribers climbed 49% from the prior year to 32,123. The average monthly revenue per subscriber climbed 31% to $194.

Those kinds of numbers have brought favorable reviews from industry analysts.

"Trulia's strong traffic growth and record subscriber net adds in the first half of 2013 have been impressive, especially considering the company does not allocate any marketing dollars to branding," JPMorgan analyst Doug Anmuth noted in an August report.

Trulia recently boosted its subscriptions by adding a net 18,000 subscribers to its existing 32,000 with its buyout of Market Leader, a provider of real estate SaaS (online software as a service) customer relationship management tools. That deal, estimated at $355 million, was announced in May and closed in August.

"While the size of the deal represents some risk, we believe Trulia can ultimately leverage Market Leader's large user base with cross-selling opportunities," Anmuth noted.

Meanwhile, Trulia's share price has shot much higher since debuting a year ago at 22.10, after the IPO priced at $17. The stock touched a record high of 52.71 on Thursday and currently trades near 48.

That stock growth extends to Trulia's chief rivals in online real estate tools:Zillow ( Z ) andMove ( MOVE ).

Zillow, based in Seattle, provides tools for buyers, renters and agents. Its stock price has more than doubled over the past 12 months.

San Jose, Calif.-based Move, which specializes in rentals, has seen its shares rise more than 85% over the same time frame.

Each of these companies has benefited from this year's rebound in the housing market.

Signs Of Strength

Last week, the National Association of Realtors reported that existing-home sales in August rose to a seasonally adjusted annual rate of 5.48 million from 5.39 million in July.

Sales were up 13.2% from a year earlier and reached the highest level in more than six years.

Foreclosed or short-sale homes accounted for only 12% of sales, down from 23% the prior year. The median price of a single-family home gained 14% to $212,000.

Though much of the news has been positive this year, concerns are growing that rising mortgage rates will slow the rebound. The average rate for a 30-year fixed-rate mortgage has increased to 4.5% from about 3.3% as recently as May.

In a statement accompanying the existing home sales report, NAR Chief Economist Lawrence Yun warned that the housing market might be experiencing a temporary peak in sales.

"Rising mortgage interest rates pushed more buyers to close deals, but monthly sales are likely to be uneven in the months ahead from several market frictions," Yun said.

Still, many industry analysts remain upbeat about the state of the housing market. And the Federal Reserve Open Market Committee's decision last Wednesday to keep up the pace of asset purchases could help keep a lid on mortgage rate rises, as IBD reported .

Fed Chairman Ben Bernanke said then that the Fed is "somewhat concerned" and wants to "see the effects of higher interest rates on the economy, particularly in mortgage rates on housing," before any potential decision to taper stimulus.

Jed Kolko, Trulia's chief economist and VP of analytics, says that even though rising rates "may hurt sales a little," an improving economy and expanding housing inventory will help offset that.

"In addition to rising rates, we also happen to have more inventory," Kolko told IBD. "The reason for the slight increase in inventory is that rising prices have encouraged more people to put their homes on the market. Inventory is still tight but it's not quite as tight as six months ago."

Local Ads

For now, the outlook on Trulia is positive. Analysts expect the company to produce robust earnings growth over the next year and a half as it expands its user base and real estate agent subscriptions and integrates its purchase of Market Leader.

The company also stands to benefit from growth in its Trulia Local Ads (TLA) program, which lets real estate professionals buy a percentage share of advertising space on Trulia's search results and listings pages.

Trulia should get a similar boost from its Trulia Mobile Ads (TMA) program, which lets agents meet clients who use Trulia on their mobile devices.

JPMorgan's Anmuth expects "TLA pricing increases and strong TMA adoption" to drive average revenue per user growth. He also says the Market Leader buyout "helps to enhance Trulia's offering to real estate agents and expand its marketplace product offerings."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas

Referenced Stocks: MOVE , TRLA , Z

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