I have been following the progress of Zillow (Z) for the last few years, so their success does not surprise me at all. The company recently posted a fourth straight beat of the Zacks Consensus Estimate, launched a new product and saw analysts increase price targets. The stock is currently a Zacks Rank #3 (Hold).
Trulia (TRLA) is a major competitor of Zillow, and they met the Zacks Consensus Estimate this quarter. TRLA missed on the broader consensus estimate this quarter, but they gave investors confidence in the form of raised guidance. TRLA is Zacks Rank #5 (Strong Sell)
Finally, Move (MOVE) was able to beat the Zacks Consensus Estimate by a penny, but ended up guiding Wall Street lower for the following quarter. Oppenhemier maintained a hold rating on the stock but dropped their target price to $18 from $20. MOVE carries a Zacks Rank #3 (Hold).
Take it from the Top
Earnings, guidance and analyst actions have a way of grabbing the headlines
and they are all very important to investors, but I want to take a look at these companies in a different light than normal.
The topline is of extreme importance to growth oriented investors, and all three of these stocks are growth plays. Lets take a deeper look at the revenue growth of all three.
Zillow reported revenue of $66.2M, 69.7% ahead of the year ago levels and beating the consensus estimate of $63.3M. This was the eight straight time the company has posted revenue ahead of the consensus estimate.
Trulia reported revenue of $54.5M, 127% ahead of year ago levels and beating the consensus estimate of $53.5M. This was the seventh straight beat of the consensus revenue estimate for Trulia.
Move reported revenue of $58M, which was 7% more than year ago level but slightly below the consensus estimate of $58.04M. This was the second straight quarter that saw revenue come in slightly below expectations.
In order for any company to continue to grow, it has to invest in itself. The best way of measuring this is through research and development. As noted above, Zillow launched a new product the day after earnings with its Zestimate Forecast. It is a guessing game to say how much of R&D went to that project, but it does show some return on dollars spent. Lets take a look at how the three have been investing in themselves.
Zillow spent $10.2M on R&D, up 59% from the year ago level, but that is not as important. Investors should look more at what percent of revenue R&D carries. For Zillow, R&D was 15.4% of revenue, down from 16.4% in the year ago period.
Trulia had $12.6M in R&D, up 169% from the year ago level. TRLA has seen R&D increase as a percent of revenue from 19.6% a year ago to 23.2%.
Move recorded $11.13M in R&D, up 13% from last year. There was a small increase as a percent of revenue moved from 18.2% to 19.2%.
As the percent of revenue spent on R&D decreases, more cash is available for shareholders in the form of earnings.
Where The Money Went
The idea here is that while Trulia is increasing its R&D, the impacts are not as dramatic
at least not yet. In the most recent quarter the company noted the development of new construction home searches and expansion of data deals with MLS. Trulia has spent $39.9M in R&D over the last four quarters.
Zillow seems to be controlling the R&D spend while launching recent products like Zillow Diggs and Zestimate Forecast. Zillow has racked up $32.5M in R&D over the past 12 months.
Move launched Doorsteps Swipe for first time home buyers and another new product Porch Home and Neighborhood Report for remolding information. Move topped the charts with $40M in R&D over the last four quarters.
Crosstown Traffic, Its So Hard to Get Through To You
All the products, and the money spent on them end up for naught if no one comes to the site. A quick review of unique users is the final data set that I wanted to highlight.
Zillow had 79M monthly unique users, up 50% from the year ago levels. Trulia 44.6M unique users, up 42%. Move had 33M unique users in March, up 21%.
Bringing It All Home
Zillow clearly holds the dominant position among the online real estate information sites. The question becomes at what point do Trulia and Move have to team up to take on the industry leader? Combined they would still have less traffic, but would $405M in trailing twelve months revenue compared to $224M for Zillow.
While this nascent space likely has room for several winners, the question has to be asked, will TRLA and MOVE team up to take on Z? Such a deal might make some sense, but could there be any big jumps from either stock in the deal? MOVE has roughly 3M shares sold short or about 7.8% of the float. TRLA on the other hand has 13.6M shares sold short or about 41.8% of the float.
So a MOVE, TRLA deal might inspire a squeeze on shares of the later. I would be remiss if I didn't mention that Z has about 10M shares sold short or about 36% of the float.
Investors love to see revenue growth. More than that, they want to know that revenue will continue to grow and we can see that via R&D spend. At some point, however, R&D needs to begin to fall as a percentage of revenue to help grow earnings. Zillow seems to be delivering more from a smaller R&D budget, while MOVE and TRLA look like they may need to join forces down the road. For now, investors would be wise to wait for estimates to improve for TRLA before making an investment decision, and given that they are larger than MOVE, they would have to be the acquirer as well.
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