Real estate media and technology provider Homestore today reported third-quarter earnings of $1.9 million, or 1 cent per share, up from its net loss of $4.6 million for the same period a year ago.
Total revenue for the third quarter was $66.3 million, a 21 percent increase from $54.8 million in the third quarter of 2004.
Homestore’s earnings report came one day after the Westlake Village, Calif.-based company announced that Elevation Partners, a private equity firm, has agreed to invest $100 million in the company in the form of convertible preferred stock.
Homestore’s shares (Nasdaq:HOMS) climbed 52 cents, or 14.6 percent to $4.08 in midday trading on the investment news Monday.
Shares on Tuesday closed at $4.20.
“Our third-quarter financial results represent further validation of our ongoing investment programs,” said Mike Long, Homestore’s CEO. “The businesses that were early beneficiaries of our investments are performing very well and are positioned for continued growth.”
“With yesterday’s announcement of a $100 million strategic investment by Elevation Partners, we are able to aggressively pursue initiatives and opportunities that both enhance our value to consumers and deliver market leading product offerings to our customers,” Long said.
The leadership team of Elevation Partners includes Fred Anderson, a former Apple Computer executive vice president and chief financial officer, and Bono, the lead singer of rock band U2. Anderson and Roger McNamee, another leader for the investment group, are joining Homestore’s board of directors as a part of the investment agreement.
Anderson and McNamee, in a Monday interview, said the team was drawn to Homestore because of its extensive property listings content, large audience of consumers, a relationship with the Realtors trade group, and potential for growth in online advertising revenue.
They also noted that the Internet has given consumers more choices and power in the marketplace.
“The Internet has become either a major or the dominant source of information for consumers. In time you will see a migration of advertising online. In keeping with that shift in consumer behavior, we think that Homestore is a really, really well-positioned company to benefit from that trend,” Anderson said.
Long announced on Tuesday that Homestore is working on a new mapping product to display property listings, and this feature is expected to launch before the end of the year at Realtor.com, a National Association of Realtors-affiliated home-search site that Homestore operates.
“Maps are an increasingly popular way to search for content,” he said, adding that there have been significant advancements in online mapping technology.
Homestore is about one-third of the way through its testing of an online home-valuation tool that doubles as a lead-generation product, Long also said, and about 2,000 real estate professionals are testing out the product, called Top Marketer.
The real estate market is in transition from a prolonged seller’s market to a buyer’s market, Long said, though Homestore should not be greatly impacted from this turn in the market. Real estate professionals may find advertising opportunities at Realtor.com to be more efficient and cost-effective than traditional print advertising, for example, he said.
“Now we’re entering a buyer’s market and the winners and losers will be chosen by those who are very effective at marketing. We’re going to have to roll our sleeves up and become very effective marketers of homes,” Long said.
“Any reallocation of the advertising spend creates a huge marketing opportunity for us. We are quite optimistic about online real estate advertising, even in a soft real estate market. The key challenge is to ensure that we are positioned to participate in that online migration.”
Even in a down market, history has shown that the industry’s spending for classified advertising “is not very volatile,” Long also said.
Consumer traffic at Homestore’s Web sites was up about 18 percent during the third-quarter of this year compared to third-quarter 2004, Long said.
Homestore’s net income for the third quarter of 2005 included legal expense of $5.5 million, reflected in general and administrative expense, related to the company’s obligation to advance the defense costs of former officers.
Net loss from the third quarter of 2004 included a similar expense in the amount of $7.2 million, the company said.
Homestore officials said they expect the company will continue to incur additional legal expenses for former officers.
Lewis R. Belote III, chief financial officer at Homestore, said fourth-quarter revenue is expected to be relatively flat when compared with the third-quarter, and Long noted that the fourth-quarter is seasonally slow in the real estate industry because fewer people tend to look for homes at that time of year.
Homestore’s EBITDA (income from operations, excluding restructuring charges and certain other non-cash and non-recurring items, principally stock-based charges, depreciation, and amortization) for the third quarter of 2005 was $2.9 million, compared to a loss of $3.4 million for the third quarter of 2004. The company’s EBITDA calculation for the third quarter of 2005 excludes the impact of $1.3 million in non-recurring revenue.
Revenue for the first nine months of 2005 was $186 million, compared to $162.5 million for the same period in 2004. Net income for the nine months was $4.9 million, or 3 cents per share, compared with a net loss of $13.9 million, or 10 cents per share, in the first nine months of 2004.
**Glenn Roberts, Jr., contributed to this report.
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