Homestore Inc., which operates several home-search Web sites, including Realtor.com, is an extreme example of the dot-com boom and bust: its stock price reached a high of $122.25 in January 2000 before free-falling to 29 cents in October 2002.

But now the company appears to be rebounding from a murky past that has included management problems and accompanying legal and financial nightmares.

Homestore Inc., which operates several home-search Web sites, including Realtor.com, is an extreme example of the dot-com boom and bust: its stock price reached a high of $122.25 in January 2000 before free-falling to 29 cents in October 2002.

But now the company appears to be rebounding from a murky past that has included management problems and accompanying legal and financial nightmares. Homestore’s stock price, which started the day at $4.10, is a far cry from the glory days of the Internet gold rush, but it has more than doubled since June 27.

And the company’s stock price has jumped 60.2 percent since Aug. 4, based on second-quarter financial results that beat Wall Street expectations.

Summer is typically the time of year when the real estate industry shines – home buyers are out in full force and home sales are generally strongest – and Homestore has had a big summer, too.

On Aug. 5, Homestore announced that its second-quarter revenue reached a record $63.3 million, a 16 percent increase over second-quarter 2004. And net income for the second quarter was $3.3 million, compared to a net loss of about $4.3 million in the prior year’s second quarter.

In addition to Realtor.com, which the company operates through an agreement with the National Association of Realtors trade group, Homestore also operates RentNet.com and HomeBuilder.com Web sites. Realtor.com, a popular home-search site among consumers, has been a major driver for company profits, and Realtor.com revenue was up 39 percent from second-quarter 2004 to second-quarter 2005, the company reported.

Also, the company announced that it will launch a new, pay-per-performance online advertising program in the current quarter.

Some Wall Street analysts are impressed. An analyst for Avondale Partners Inc., an investment banking firm, on Aug. 9 upgraded Homestore’s stock from “market perform” to “market outperform.” And an analyst for Deutsche Bank upgraded the company’s stock from “hold” to “buy” on Aug. 5, stating that the company has apparently “turned the corner toward double-digit growth and is now back in the black as of the second-quarter.”

This optimism is despite uncertainly over Homestore’s future payments to compensate former company for their legal costs. Though Homestore has worked to distance itself from problems relating to past managers, the company has been forced to pay millions of dollars in legal expenses for a former company official, and another former official is now seeking millions more relating to legal battles that stem from alleged past financial improprieties.

The U.S. Securities and Exchange Commission and the U.S. Justice Department in April filed criminal and civil cases against Peter Tafeen, who formerly served as Homestore’s executive vice president of business development, and Stuart Wolff, former CEO of the company, for their alleged participation in a scheme to inflate the company’s online advertising revenues.

Homestore has so far been forced to pay $4.2 million worth of legal fees for Tafeen, and Tafeen has since requested an additional $700,000. Also, Wolff is seeking $6.3 million from the company, and Homestore acknowledged in its financial report that it will likely be forced to pay much of that amount. The company has also stated that it is “unable to estimate the amount of costs it may ultimately have to advance” to former officials.

Homestore’s accounting irregularities in 2000 and 2001 led to the restatement of several quarterly earnings reports and prompted an SEC investigation, federal fraud charges against a number of former Homestore executives and a class-action shareholder lawsuit. Homestore settled a shareholder lawsuit with the California State Teachers Retirement Fund, a major participant in the lawsuit, for about $93 million in March 2004.

Web traffic to the Realtor.com site has reportedly been strong. Homestore reported in May that the site, which includes the lion’s share of Realtor-supplied property listings from across the country, received a record volume of traffic in March 2005. In that month, the site received about 7 million unique visitors, according to comScore Media Metrix, an Internet research company.

Hitwise, another Internet-monitoring firm, reported in July that Realtor.com was the top real estate Web site, ranked by market share of U.S. visits to the real estate category for the week ending June 11, 2005. Realtor.com had a 12.29 percent market share for the real estate category that week, Hitwise reported, followed by Homestore’s RentNet.com site, which had a 5.5 percent market share.

***

Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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