Move Will Take Time to MOVE

The real estate market continues to be difficult and credit markets did not improve much in 2009. The adverse environment continues to affect Move (MOVE - Snapshot Report), which provides a wide range of real estate services through a family of websites.

The ongoing global financial crisis affecting the banking system and financial markets has resulted in a severe tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in credit and equity markets. This in turn has affected other industries in the economy. The U.S. residential real estate market is currently going through a significant downturn due to downward pressure on housing prices, credit constraints inhibiting home buyers and an exceptionally large inventory of unsold homes. This is the worst crisis that the industry has faced in decades and there seems to be no turnaround in the near future.

Amidst all this, Move continues to strive hard to rise from the ashes. The company has appointed a new CEO, Mr Steve Berkowitz, who outlined a major reorganization plan in the first quarter earnings call. The vision is on target but execution is the key and results will take time. Earlier, the company undertook a restructuring plan to eliminate duplicate resources and redundancies and implemented a new operating structure to lower total operating expenses. This resulted in a $20 million reduction in operating expenses in the first quarter.

Management is pursuing value-enhancing initiatives but there is not much the company can do given the circumstances. Real estate advertising is down 71% from its peak. The company faces competition from newspapers in that respect. But with newspapers failing all around, one can expect a mass shift to internet-based real estate advertising, which happens to be the company’s sweet spot. However, the real estate industry is yet to find a bottom and a lot more inventory has to work through the system before one can see a meaningful increase in housing starts.

Given the challenging real estate market in the US and lack of a near-term catalyst, we think the shares will remain range-bound. Accordingly, we continue to rate the shares of Move a Hold.