Trulia or Zillow: Which is the best investment?
Ashish is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On August 17, Trulia filed an S-1 in preparation for an IPO of up to $75 million. The filing finally threw some light on the size of the company and its competitive position relative to Zillow (NASDAQ: Z). We believe that there is plenty of scope in the real estate business even for multiple players in the short term and over the long term, Zillow has a very good chance of building sustainable competitive advantages on top of its current lead. We are also positive that strategic actions taken by Zillow over the prior year (website tools for Agents, extending into rentals, and Mortgage Marketplace) will strengthen its competitive position.
The S-1 filing from Trulia gave us a lot of data to work with and provided a bit of insight into the total real-estate market. When we compare Zillow, Trulia, and Move (NASDAQ: MOVE) on the basis of revenues we note that although Move has the highest revenues among the three of them, Zillow has consistently outperformed both Move and Trulia on the basis of Revenue growth YoY. Zillow has shown a strong growth in the recent periods, increasing revenue 117% and 87% in 2011 and 2H12, respectively, compared to Trulia’s 95% and 78%and Move’s -3% and -1%. Though Trulia posted the fastest 2Q growth out of the three at 81%, we believe that it was mainly driven by the price increases in the Trulia marketplace.
Furthermore, looking at the user data, we note that Zillow has a better record in attracting unique visitors to its site than Trulia. While Trulia attracted 22 million monthly unique visitors per month to its site in 1H12 growing 64% from 1H11, Zillow stood at 32.6 million in 2H12 growing 72% y/y from 1H12. Zillow has also performed better in term of agent subscription as it recently surpassed Trulia in terms of agent subscription with a total agent subscriber base of 22.6K(up 70% YoY) compared to Trulia’s 21.5K(up 46% YoY).
Source: Company Reports and TheAnalystHub.com Research
As both Zillow and Trulia remain in the investment phase of their business cycle, we also compared them on the basis of adjusted EBIDTA margins. While Trulia has posted negative EBITDA margins owing to the continuous investments, Zillow has been able to gain both profitability and scale.
Source: Company Reports and TheAnalystHub.com Research
Apart from that Zillow has been enhancing its competitive position with its initiatives in AgentHub, Rentals and Mortgages (For more details see: Zillow: Looks poised to grow with its diverse offerings). With its AgentHub offering Zillow is aiming to be more than just a marketing platform for agents. We believe that the AgentHub offering could result in an added number of agents’ overtime which might bring considerable cross/up sell opportunities for Zillow in the long term. Furthermore, we believe that Zillow has been working towards increasing its reach as it partners with Yahoo (NASDAQ: YHOO) to provide real estate listings through Yahoo! Homes. Zillow also associates with AOL (NYSE: AOL) in October 2011 to display Zillow’s “Mortgage Marketplace” rates on both AOL Real Estate and AOL-owned Daily Finance sites. We believe that Zillow is the best play in the online Real-estate market when we compare it with its competitors and rate it as a buy.
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