Will the Zillow merger boost real estate brokerage stocks?


By Robbie Citrino for Kapitall.

After the combination of the two largest real estate media companies takes place the new company will be the foremost authority on real estate. It will not, however, upset the livelihood of over 165,000 realtors and agents in the United States today. 

In fact, it might actually help them.

As Zillow CEO Spencer Rascoff stated when announcing the merger: "We sell ads, not houses."

Both Zillow and Trulia have operated as media companies, giving real estate information to consumers and charging brokerages to join and promote their properties on the site. Combined, the sites raked in close to $342 million in revenues in 2013, and saw an increase in sales of over 100%. 

This, however, is not a losing situation for realtors, as paying to promote on these sites has helped boost 2013 home sales to their highest point in seven years .

In addition, buying a house is usually the largest investment one undertakes, and it typically requires personal connection with a human advisor rather than a website.

That means brokerage companies, like Re/Max ( RMAX ) and Realogy Corp. ( RLGY ) (parent company of Sotheby's , Coldwell Banker and Century 21 ), will likely keep their clients, possibly even selling houses faster and keeping their regular commissions.

This misunderstanding about Zillow's business model could be the reason why Re/Max and Realogy have fallen 11% and 20% respectively since mid-march. Could this be a time to buy these undervalued brokerages? Or could Zillow move further into their territory?

Click on the interactive chart to view data over time. 

1. Realogy Holdings Corp. ( RLGY , Earnings , Analysts , Financials ): Provides real estate and relocation services worldwide. Market cap at $5.56B, most recent closing price at $38.04. 

2. RE/MAX Holdings, Inc. ( RMAX , Earnings , Analysts , Financials ): Operates as a franchisor for residential and commercial real estate brokerage services in the United States and internationally. Market cap at $332.51M, most recent closing price at $28.64.

3. Trulia, Inc. ( TRLA , Earnings , Analysts , Financials ): Operates an online real estate information marketplace. Market cap at $2.08B, most recent closing price at $56.35. 

(List compiled by Robbie Citrino. Monthly returns sourced from Zacks Investment Research, all other data sourced from Finviz.)

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.

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 , Stocks

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