Now that real estate listing company Trulia's (
TRLA
) IPO is safely and profitably launched, a lot of investors are
wondering if they should grab some shares too, particularly since
the U.S. housing market is finally seeing some action. But the
better question for those interested in such things is: why
wouldn't you buy Zillow (
Z
) instead?
Trulia and Zillow compete for dollars from real estate
professionals by offering home sale and rental information - mainly
listings with lots of pictures and value estimators - at websites
that are free to the public. Both companies are adding viewers by
the millions and lots of revenue too. For investors, the key
difference so far is that Zillow makes money doing this and Trulia
does not. Zillow investors have done particularly well this year,
as seen in this
stock chart
.
Z
data by
YCharts
Zillow is the second most popular website for home sale listings
behind Yahoo Real Estate, and it has an agreement with Yahoo (
YHOO
) to run all of its listings there too. The company was quick to
jump on the mobile revolution. Its apps with all those photos,
specs and contacts for any given house, are the most popular among
people in the market. Similar tools for renters, including a
Zestimate for a reasonable rental rate, are catching on. Zillow's
second quarter revenue is up 75% over the same period a year
earlier. In results published since its IPO in July 2011, profits
are way up too.
Z Revenue TTM
data by
YCharts
Zillow's share price valuations are astronomical on just about
any metric. They get a
PE
ratio
of more than 200; and a price sales ratio of more than 13. Here's
how they look on a couple of other valuation metrics:
Z Price / Tangible Book Value
data by
YCharts
Are Trulia's tools enticing enough to compete with Zillow's
strong foothold? For my own home, which is not for sale, Trulia
shows the picture of someone else's house. Trulia does list schools
near my address, but the site doesn't explain that unless the
homeowner wins a public school lottery (literally), his children
will be assigned to the one with an abysmal rating. Questions
appear to be answered by advertisers; hardly the unbiased or
helpful insight one might expect from social media. (What area has
good schools? Five agents helpfully direct the asker to the school
district's website.) The crime statistics incorporate my entire,
rather crime-ridden county, which definitely does not help the
reputation of my quite uneventful neighborhood.
Perhaps such critiques are irrelevant. What investors really see
here are two tiny companies well-positioned in a very large market
that will only get bigger with a housing recovery. These share
prices suggest that investors believe the market is big enough for
both of them. They also suggest that these are shares for investors
comfortable with more speculative plays. At these valuations, even
profits don't go too far in lowering the risk.
But that hasn't stopped most analysts who follow Zillow from
issuing buy recommendations on the shares. With Zillow's annual
revenue not yet breaking $90 million, those followers believe
Zillow still has a lot to gain with a recovering real estate
sector. The real estate industry estimates that about $24 billion
will be spent on U.S. home marketing this year. The tools on both
sites help homeowners sell property without the help of Zillow and
Trulia, but this irony has not seemed to hurt business yet. Any
pick up in home sales like we've seen lately is good news for both
companies.
US Existing Home Sales
data by
YCharts
Trulia, too, sells stuff to real estate professionals that gets
them leads by offering a lot of information to consumers for free
that they can see on computers and mobile devices. It gets about
two-thirds as much traffic as Zillow and hasn't been profitable
yet. As of June 30, it had a deficit of $43.8 million, according to
its SEC filings, and currently ranks fourth for usage behind Move
Inc.'s (
MOVE
) Realtor.com site.
But its sales have almost doubled in each of the past two years.
Its backers - and these include Accel, Fayez Sarofim & Co. and
Sequoia Capital -- believe the site will attract more viewers
largely by incorporating community information and user-generated
feedback into the site. The company's prospectus describes Trulia
as a site more likely to attract prequalified buyers more ready to
act than those on Zillow. In fact, Trulia believes its viewers
don't look at Zillow at all.
Trulia went public at $17 a share in a $75 million IPO on Aug.
31, and the price jumped 41% in one day. It's slid a bit as
questions crept in over whether a company with $38.5 million in
sales last year is really worthy of a $600 million-plus market
cap.
TRLA
data by
YCharts
TRU SHARE PRICE
Dee Gill is an editor for the
YCharts Pro Investor Service
which includes professional
stock charts
,
stock ratings
and
portfolio strategies
.