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Credit: Chris Ratcliffe/Bloomberg

How Many Websites Can Real Estate Ads Sustain?

Sites Comprise 89% of Traffic to Top Real Estate Sites

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A Zillow purchase of Trulia would create a dominant search website for U.S. house hunters, reshaping an online industry the companies helped popularize.

Zillow, the largest U.S. real estate website, is seeking to buy No. 2 Trulia for as much as $2 billion in cash and stock, according to people with knowledge of the matter. An agreement may be announced as soon as next week, said one of the people, who asked not to be identified because the information is private. Talks are ongoing and may not lead to a deal.

The companies help buyers and renters find information on homes, generating revenue by selling advertising and charging Realtors to place their listings prominently.

Together Zillow and Trulia had more than 85 million unique visitors in June, accounting for about 89% of all traffic to the 15 most-visited real estate sites tracked by ComScore.

But neither company is currently profitable on an annual basis.

A combination would make it hard for rivals to compete, said Steve Murray, president of Real Trends in Castle Rock, Colorado. "It's a blockbuster," said Mr. Murray, whose company provides research and consulting for the real estate industry. "What this says is, Zillow has been and has locked up the absolute dominant position in online real estate in the United States."

Seattle-based Zillow rose more than 15% to $145.76 a share yesterday, giving it a market value of $5.8 billion. Trulia, based in San Francisco, surged 32% to $53.74 a share, giving it a market value of $2 billion. Zillow may pay about two-thirds of the purchase price with its own stock, one of the people familiar with the matter said.

Katie Curnutte, a spokeswoman for Zillow, declined to comment. Matt Flegal, a spokesman for Trulia, said the company doesn't comment on speculation.

Smaller competitors
Zillow shares have climbed sevenfold since the company went public three years ago, while Trulia has tripled since its 2012 initial public offering. They compete with companies including Move Inc., which is also publicly traded, and Redfin Corp., which is backed by venture capital firms including Greylock Partners.

A Trulia deal would be the biggest acquisition yet for Zillow CEO Spencer Rascoff, according to data compiled by Bloomberg, who bought New York real estate website Streeteasy.com for $50 million last year and apartment-search site HotPads Inc. for $16 million in 2012. Earlier this month, the company purchased Retsly Software Inc., a Vancouver- based real estate software company.

Zillow's goal has long been to consolidate the industry, according to Stefan Swanepoel, a consultant and author on real estate trends.

"This follows on Zillow's aggressive path to dominate the residential real estate space and become the undisputed leader in providing consumer-convenient, one-stop home shopping information," Mr. Swanepoel said in an e-mail. "Life for all other real estate portals will become twice as hard."

Sean Aggarwal, chief financial officer at Trulia, described online real estate as a "very large category" at the Bank of America Merrill Lynch Global Technology Conference last month, with real estate professionals spending about $28 billion a year on marketing. Trulia and Zillow collectively are doing about $500 million to $600 million a year in revenue, he said, leaving $27 billion plus of "potential money" that could come into that realm over the next several years.

Consolidation in the industry is likely because a relatively small number of real estate agents earn enough to pay advertising subscription and software-license fees to the property sites, said Brian Boero, partner at 1000Watt, a real estate marketing and strategy firm in Portland, Oregon.

"They're all chasing the same Realtor wallet and it's a tough battle," Boero said. "How many real estate search sites can the category really sustain? That's an open question."

~ Bloomberg News ~

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