After years of blows from scandalous news headlines, pricey lawsuit settlements and stock trading at under a buck at one point, the blood may finally be clearing from Homestore’s battlefield.
The buzz on Wall Street implies that 2005 could be Homestore’s big comeback year, with profitability on the horizon and the possibility of entering the lead generation business. A number of stars are aligning for this conclusion, but the largest indicator lies in a recent deal the online company made with real estate franchise giant NRT.
An agreement between the companies announced late last week essentially boosts NRT’s local brokerage exposure on Homestore-operated Realtor.com, a consumer Web portal with more than 2 million home listings. NRT’s companies get expanded marketing on Realtor.com, and Homestore gets a pool of some 58,000 real estate agents to buy their enhanced listings features.
The NRT deal is not small by any means.
Homestore estimates it will make $3 million to $5 million in revenue this year from the NRT enhanced listing deal. And Think Equity, which provides research and investment banking services, noted the opportunity for enhanced listings is potentially worth more than $200 million per year to Homestore.
Speculation is circulating that the NRT agreement could trigger other brokerages to enter similar deals with Realtor.com. And Homestore may be in a position to charge top dollar for the marketing exposure. NRT’s presence in the real estate industry is a force to be reckoned with, and the Realtor.com exposure could easily lure agents looking for a Web business plan to come on board.
Optimism appears to have surrounded Homestore, showing positive signs in its stock. Analyst Piper Jaffrey on Monday upgraded Homestore’s stock, which spiked on news of the NRT deal late last week from the $2.40 range to close to $3.20 per share Friday. Homestore shares traded at $2.78 this morning.
The company narrowed its quarterly loss from $30.6 million in the third quarter 2003 to $4.6 million in the third quarter 2004, the most recent earnings statement. Homestore will release its fourth-quarter 2004 earnings on March 9.
Meanwhile, investors continue to eye restrictions on Homestore’s model, frequently asking during quarterly earnings calls whether there’s been any movement to lift old rules put in place through its relationship with the National Association of Realtors. The licensing agreement with NAR prohibits referral fees, keeping Homestore from becoming a traditional online lead or referral model, which is emerging as a solid moneymaker.
The online lead and referral business is an obvious opportunity for Homestore to use the power of its brand, Web traffic and industry relationships to become a leader in the space.
However, the online real estate space continues to grow, and could someday be overcrowded, with the recent successful IPOs of HouseValues and ZipRealty alerting investors of the cash-flow possibilities.
HouseValues, which sells leads and marketing services to real estate brokers and agents, went public last fall, and last week reported fourth-quarter revenue of $14.4 million, with net earnings of $1.9 million for the quarter. HouseValues’ revenue showed a 112 percent increase from the same quarter the previous year.
There’s also the added competition of media giant InterActiveCorp, which owns LendingTree and RealEstate.com, a growing consumer portal.
Many brokerages and agents may have already started building their online marketing plans outside of Realtor.com, which doesn’t bode well for Homestore. Add to that the company’s history of scandal and drastic changes in pricing structure and it’s easy to see why some in the industry are left with a bad taste in their mouths, opting for Web exposure not related to Homestore.
Homestore does have other business channels in addition to Realtor.com, including RentNet, Homebuilder.com and Welcome Wagon, and the company plans to spend $25 million on these segments this year.
Whether Homestore will grow into a leader of online real estate is still in question. But it’s become clear that the money and opportunity have aligned for this segment to grow significantly this year.
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