Monthly Archives: November 2008

Time to Call My Stockbroker: Buy MOVE!

(Disclaimer: Move, Inc. is a client of Onboard Informatics, my employer.  But I have spoken to no one there, nor anyone here who deals with Move, for this post.  Everything here is my opinion, based on my own research into publicly available information.)

In what is an unusually long post for him, Dustin Luther laments the current state of Move’s stock:

When I started at Move in May ‘06, the stock (and my options) was priced at slightly above $6.  Today, I see the stock end today at $0.89, making for a very sad looking chart and definitive proof that I know nothing about timing my employment options.  I’m also not particularly good at reading financials, but I do know enough to know that having a market cap of $136M when you have $140M in total assets (down from over $200M in total assets from last year) is not a good thing.  I’d think they’d be an obvious take-over target except my guess is that many suitors would view the contract with NAR as more of an impediment to growth than an asset.

Yes, MOVE is an excellent takeover target.  And that contract with NAR is an asset (valued by MOVE itself at about $1.5m it seems, based on their Q3 2008 10-Q.)  And I think that contact could end up being pure gold if it means exemption for Realtor.com from the various IDX and VOW rules.

But really, that would mean that Move’s shareholders have lost their nerve completely.  And there’s no reason to panic, from what I can tell.  In fact, I think this is an amazing opportunity to build up long positions on MOVE.  (I am not a financial advisor, nor anyone competent to advise you on stocks, so uh… think of this post as being like a stock tip from your cabbie or something.)

Let me list my reasons.

1.  As Dustin points out, when your market cap is $136m, and your cash is $114m… um, yeah, you’re undervalued by alot.  In fact, the cash position is likely significantly better than $114m, as explained in the 10-Q, and is likely to be closer to $235m.  (The reason has to do with auction-rate securities, failures in that market, etc. which I noted earlier this year.)  But if you’re a shareholder of Move, you’d be an absolute moron to sell $235m for $136m, wouldn’t you?  Even discounting the ARS by some amount because of the risk, with the entire might of the U.S. government focused on bailing out the finance industry, I can’t see $121m worth of ARS being valued at only $22m (which is what $136m – $114m represents).

2.  The core business over at Move doesn’t seem that bad to me.  I’m no CFA, but looking at their Q3 results… yeah… there have been declines, but I see nothing to warrant a doom & gloom scenario.

Revenues went from $63.3m in Q3 of 2007 to $61.2m in Q3 of 2008.  it’s a loss, sure, but… not enough to warrant a drop from $2.50 a share range in Nov of 2007 to $0.94 today (when I just checked it).  The market must be pricing in some sort of future risk, but I’m just not sure I see it.

The management’s report contains this gem:

These changing conditions resulted in fewer home purchases and forced many real estate professionals to reconsider their marketing spend. In 2006, we saw many customers begin to shift their dollars from conventional offline channels, such as newspapers and real estate guides, to the Internet. We saw many brokers move their spending online and many home builders increased their marketing spend to move existing inventory, even as they slowed their production and our business grew as a result. However, as the slow market continued into 2008, it has caused our rate of growth to decline. While the advertising spend by many of the large agents and brokers appears steady, some of the medium and smaller businesses and agents have reduced expenses to remain in business and this has caused our growth rate to continue to decline and we may continue to experience a decline in revenue as we move into 2009.

So the big players are holding steady on their ad spends on Realtor.com, while the small guys are struggling to stay afloat.  This isn’t… shocking… but if it means losing about $2m per quarter for the next eight quarters… um… Move can deal with a $16m loss with their balance sheet.  But when you get even deeper in the weeds you get this:

Real Estate Services revenue decreased $1.4 million, or 3%, to $54.5 million for the three months ended September 30, 2008, compared to $55.9 million for the three months ended September 30, 2007. The decrease in revenue was primarily generated by a decrease in our HomeBuilder.com ® business due to decreased Showcase Listings revenue and a decrease in our REALTOR.com ® business due to decreased Featured Products revenue primarily due to reduced purchasing by one large broker customer. These decreases were partially offset by an increase in our Top Producer ® product offerings. Real Estate Services revenue represented approximately 89% of total revenue for the three months ended September 30, 2008 compared to 88% of total revenue for the three months ended September 30, 2007.

So… the 3% decrease for Real Estate Services (which is where Realtor.com goes) is because of ONE customer?  I wonder who that is.  But that doesn’t strike me as a fatal flaw.  And then Move goes and sees increases from Top Producer?  In this economy?

Color me distinctly unimpressed with doomsayers.

3.  Move continues to invest in their core business.  The latest 10-Q is showing that they’ve spent $6.8m in product and web site development.  For the year, they’ve spent $20.5m on product and web site development.  I have to ask… who else is investing this kind of money into product and web development?

I seriously doubt that the RE 2.0 upstarts like Trulia and Zillow are spending $20m YTD on web development.  And if they are, I’m willing to bet neither of those companies have $235m in cash in the bank.

The thing that would concern me is if because of the economy, Move decided to slash and burn investment into its platform.  That would have serious reverberations down the line, at a time when the future of online real estate is still very much up in the air.  But $20m is not slash and burn by any stretch of the imagination.

4.  Their margins aren’t substantially affected.  Check out this beauty:

Gross margin percentage decreased to 81% for the three months ended September 30, 2008 compared to 83% for the three months ended September 30, 2007. The decrease is due to a decrease in margins in both the Real Estate Services and Consumer Media segments resulting from decreased revenues and increased costs in the segments.

Yeah, you read that right: 81% gross margins.  Those are some freakin’ sweet numbers.

Move could probably do more to cut some expenses, especially in Sales & Marketing, and in G&A (particularly the corporate overhead, which is unallocated to a business line).  They represent respectively $19.6m and $11.7m.

5.  Move still has the biggest war chest in the RE tech space:

We have generated positive operating cash flows in each of the last two years. We have stated our intention to invest in our products, our infrastructure, and in branding Move.com TM although we have not determined the actual amount of those future expenditures. We have no material financial commitments other than those under capital and operating lease agreements and distribution and marketing agreements and our operating agreement with the NAR. We believe that existing funds, cash generated from operations, and existing sources of debt financing are adequate to satisfy our working capital and capital expenditure requirements for the foreseeable future.

That seems right to me.  As the 10-Q indicates, even while reporting significant losses, Move was generating positive cashflow from operations — to the tune of $12.3m YTD.  Combine that with their $114 in short-term cash, $121 in auction-rate securities, and you’re looking at a formidable player somehow flying under the radar.

I figure the market has to get over its nerves re: housing market.  But until it does, fact is, Move and its properties are performing pretty darn well, and getting punished simply because they are connected to real estate.  And anything real estate is toxic right now to investors.

So I think I’m calling my broker and loading up on Move at $0.94 a share.  A drop of $2m in YOY quarterly results should not drop a stock from around $2.50 a share to less than half that.

Relax, Dustin. :)  And call your financial advisor.

Starbucks vs. Twitter

So my post about Twitter is generating a fair amount of commentary from readers.  The general tone appears to be that while one shouldn’t Twitter just to generate additional business, it’s still worth doing for a variety of reasons, such as being Web 2.0 savvy, being in-touch with non-client business associates, and personal pleasure.

Here’s a followup question:

Is it better for your business as a realtor to spend 10 hours a week at your local Starbucks, or 10 hours a week Twittering?

On a percentage of the population basis, it seems that Starbucks can safely claim 8% of Americans as at least a once-weekly customer, and as high as 22% of Americans if you include the “occasional” visitor.  That’s compared to the maximum of 6% of Americans that Forrester Research claimed use Twitter (and which people dispute).

Of course, you can Twitter at Starbucks, killing two birds with one stone. :)

But the following would be a great experiment for someone to conduct.

Spend a month Twittering 10 hours a week (2 hours a day).  Count # of leads, transactions, and $$ earned as a result from that month of Twittering.

Then spend a month hanging out at the local Starbucks 10 hours a week (2 hours a day), with a sign that says, “Local Expert” or “Realtor” or whatever on your laptop, your bag, your jacket, whatever.  Get into conversations.  Count # of leads, transactions, and $$ earned as a result from hanging out at Starbucks.

Let us know the result?

-rsh

Context Goes Both Ways: Numbers, Buyers, Sellers, and Agents

Matthew Rathburn puts the NAR Profile of Home Buyers and Sellers 2008 into context. I think it’s worth reading the whole thing, including the cool graphs he’s put together.

Matthew’s got some useful insights from the realtor’s perspective:

Whereas some agents are dwelling on the issue that the Buyer is finding their home on the internet 32% of the time and only 33% of the time by the agent; I prefer to look at the fact that consumers are only find the home they buy in the newspaper less than 3% of the time. Knowing this should help agents save some money. To me, fear of the “future” is less productive than knowledge of the present.

If the seller is demanding expensive newspaper marketing, I can show them this report and then show them all the marketing I can do, just by using Postlets.com. You can show that you’re covering 80% of the most useful marketing venues, just by being an agent, putting a sign in the yard and using MLS with IDX, Postlets, Realtor.com, Zillow, Trulia, Craigslist, etc…

This sounds right to me. But there’s an angle here that Matthew isn’t thinking about.

If the Buyer is finding the home on the Internet 32% of the time, then the price charged by the Agent has to go lower. By how much? Who knows. Even if the total price charged to the Buyer/Seller remains the same, the percentage of that price that goes to the Agent for his labor has to go down, to reflect the investment made in the capital asset of the website by the Agent, or the Broker, or whomever.

The 33% of the buyers found by the Agent directly –> the Agent in that case is bringing more value to the Seller, as compared to the 32% who found the property on the Web.

If the seller is demanding expensive newspaper marketing, but you can show them that just by using Postlets.com, you can cover 80% of the most useful marketing venues, then you also have to be prepared for the seller demanding that you cut your commissions. After all, if you have to do less work, then you should be able to charge less and still make the same profit.

The assumption that technology simply lets an agent make more money is wishful thinking. Consumers also recognize that technology makes your productivity higher, and accordingly, can expect that your price will go down. This is one of the big disconnects in the market today: brokers and agents seem to expect that all of the economic value created by technology will be captured entirely by them, while consumers expect that they will get that value. (Might be useful here to look at Redfin and any of the other rebaters.)

The real outcome is likely in between Agents capture it all, and Consumers capture it all. But rest assured that at least some part of the savings will be passed on to the consumers, like it or not.

-rsh

Questions for the Twittering Realtor

According to Forrester Research, 6% of Americans use Twitter.

Robert Scoble calls bullshit:

There is ABSOLUTELY NO WAY that many people are using Twitter.

My data shows that the regular users are between 50,000 and 300,000. A high percentage of which are outside the United States. That doesn’t come anywhere close to the numbers required for 6%.

And much debate ensues in the comments sections of geekblogs everywhere.

Here’s the thing, though: whether the number is 1% of 6%… for realtors who are getting into the Twitter action, and espousing “microblogging” as a strategy for business development…

How you liking that 6% number?

Take your relevant market.  My local area is probably 3-6 towns (Millburn, Short Hills, Maplewood, South Orange, maybe Livingston, maybe Springfield).  Say the total population is about 100K people.  6% amounts to 6,000 Twitterers.

How much time should you spend to form connections with that 6,000 people?  Not all of whom are in the market for real estate services, and may not be for six years.

-rsh

Independent Study Shows Trulia As #1 Threat To Franchisors

According to this post on the Trulia Blog, Trulia is the #1 lead generator in the RE.net:

Threewide’s ListHub, the most widely adopted network for listing distribution, works in concert with MLSs, various franchises and brokerages, and core real estate technologies to bring real estate companies a single dashboard for controlling their online marketing strategy.  Analyzing the traffic that’s sent to clients from their syndication feeds, Threewide found some interesting results.  Here are some highlights:

  • Study analyzed about 600k listings sent from MLSs and brokers to 16 of the largest real estate sites for the month of October 2008
  • Trulia generated the most leads* in this period with almost 12,500 – over 30% of all client leads!
  • The second closest competitor had just over 15% of all leads and the 3rd just over 12%, with the top 5 making up almost 80% of all leads sent
  • Trulia had the highest percentage of redirected traffic** with over 35% of all traffic sent to ListHub clients
  • Finally,  over 8,000 listings received at least 1 lead from a consumer coming directly from Trulia, with our nearest competitor sending traffic resulting in leads for  a little over 3,600 listings

These statistics show that Trulia delivers the most leads, and in these challenging times we all know how important that is!  AND, considering that some of the 600K listings sent to Trulia were already being displayed from other broker listing sources and thus not actively displayed on the site to prevent showing duplicate listings, the actual percentage of leads sent from Trulia to Threewide’s clients is even better than the original report shows.

This is, of course, great news for Trulia.  The data supports Trulia’s business model and its claims overall.  So first off, kudos and congratulations to the Trulia crew!

However, as much as I like the boys and girls and Trulia, I have been saying since the beginning of this blog that Trulia poses a threat to franchisors and large brokerages.  Trulia has steadily denied such a thing, pointing out that they work with and for brokers and agents.

The thing is this: I look at consequences, not intent.  I have little doubt that Trulia intends to be a helpful partner to brokers and franchisors.  But the consequences of that may be entirely different from what was expected.

Consider the above news from the perspective of the average agent.

What services do you get from your broker that keeps you paying him a share of your commissions?  Whatever they are, they comprise the broker’s capital; that together with your labor as the agent creates the economic value.  Elsewhere, I wrote about the relationship between capital and labor in real estate.  The basic equation is capital + labor = production.  So when capital costs go up, labor costs have to go down if production remains the same.  And vice versa.

When Trulia replaces the broker as the #1 source of leads, then the rational agent quite rightly asks, “If I’m getting more leads to my website from Trulia than from my broker’s website, shouldn’t I get a higher split of the commission?”

The same logic goes for franchisors, such as Coldwell Banker or Remax.  If the national Remax site generates fewer leads than Trulia.com, a broker’s incentive to keep paying for use of Remax’s capital (i.e., its website, its platform, etc.) decreases, barring a sufficient increase in production to smooth over such things.

Even if Trulia funnels those leads to Remax National, who in turn funnels it to the franchisee, the rational broker can conclude that they can simply cut out the middleman of Remax and go direct to Trulia.  For that matter, as Trulia continues to do deals with MLSes and REALTOR associations, the rational broker (and agent) can get around all those people taking cuts of their commission checks.

Is there a happy win-win solution here?  I’m not sure.  At the end of the day, the market will flock around the most efficient producer.  If that’s Trulia, then it’s Trulia.  The study results above suggests that it might be.  But then, none of us have any idea of Trulia’s financials… so all this wonderful lead-generation for Trulia might be coming at a loss, which would suggest that it won’t be around long enough to displace any existing players.

One thing that does come to mind for me, however, is that if I were managing a franchisor today, or a large brokerage company today, I might take a look-see at my own lead generation efforts to my members/agents, and compare it with what they’re getting from these various third parties.  Then either prepare to provide value in some other way to continue to justify the cut I am taking, or prepare to invest heavily into capital (i.e., website, lead generation tools, etc.) to compete.  Anything else is shortsighted in the extreme.

-rsh