Please read part 1 where we do a side by side comparison of Zillow (Z) and Trulia (TRLA).
Valuation & Market
At first glance, value investors will quickly label both of these companies as overvalued.
- Zillow trades at an astronomical 15 times trailing revenues, and Trulia is not much far behind.
- Zillow is barley profitable and trades at a trailing P/E of 164+, and Trulia is not profitable yet.
However, it is understandable why both trade at such lofty multiples.
- Growth. Both are growing revenue at almost triple digits. Quarter over quarter revenue growth for Trulia was 81% and Zillow was 75%.
- Big Market. Any way you look at it, the real estate related advertising market is huge.
- From Trulia’s S1 filing: “Borrell Associates, Inc., an advertising research and consulting firm, estimated in an August 2012 industry paper that $23.7 billion would be spent in 2012 on real estate-related marketing in the United States.” If this is accurate, Zillow & Trulia would have less than 1% of the market combined.
- The majority of revenue for both companies come from paying real estate professionals. They both have over 20,000 paying subscribers. However, according to Trulia, there is “2.8 million real estate professionals in the United States.” According to wiki, “In the United States, a Realtor (capitalized) is a real estate professional, usually a broker or salesperson, who is a member of the National Association of Realtors (NAR). There are 1.3 million Realtors, mostly in the United States, and an additional 1 million licensed real estate agents who are not members of NAR and cannot use the term “realtor”. However, the U.S. Bureau of Labor Statistics claims only about 600,000 working brokers/salespersons” Both have captured a small percentage of the potential premium subscriber base.
- Opportunity for both companies to expand internationally and into adjacent markets such as “rentals, mortgages, home improvement, and agent tools”
Zillow or Trulia?
Zillow is a better investment. Although, it trades at a loftier 15 times trailing revenue, it is better than Trulia in these respects:
- Zillow is bigger. Zillow’s revenue is almost twice the size and it attracts 50% more unique visitors.
- Even at its bigger size, Zillow is growing almost at the same rate. When Zillow was Trulia’s size, it was growing much faster.
- They both have almost the same number of premium subscribers, who contribute to a majority of the revenue, but Zillow seems to be getting more revenue per subscriber.
- Zillow’s EBDITA is growing year to year. Even as it increases revenue by almost triple digits, Trulia’s EBDITA has gone down as it is making more investments in technology/development and sales/marketing. On the other hand, Zillow is growing at the same rate without as much investment, and it is a larger company.
At the current price, HypeZero cannot recommend Zillow. However, if there is a price drop and the fundamentals have not changed, Zillow will be a better investment.
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Disclosure: I do not own shares of Z or TRLA and I do not plan to initiate a position within the next week.