Rumors that real estate behemoth Realogy may be in talks to acquire Trulia pushed the price of the listing portal’s shares up 10 percent before markets closed today, but analysts who follow the companies didn’t think much of all the talk.
Realogy — which runs some of the biggest brands in real estate including Coldwell Banker Real Estate, Century 21 Real Estate, and Better Homes and Gardens Real Estate — declined to comment. So did Trulia.
Stock analysts who follow the companies said the merger chatter — which put a $52-per-share price target on Trulia, implying a deal in the $2 billion range — was probably just that.
“To me, it feels like a bogus rumor because someone needed to get out of a position,” said Bradley Safalow, founder and CEO of stock analysis firm PAA Research.
Zachary Prensky, managing partner of Little Bear Investments, said he thought the rumor was a “complete fabrication.”
Still, suggestions that an established real estate company like Realogy would (or should) make a play for a listing portal like Zillow or Trulia have been in play this year.
Industry consultant Rob Hahn made it one of his “Black Swan” predictions at an industry event in May. The one thing Realogy is lacking is a massive online lead generation engine, he said. The chance to secure a large consumer Internet presence in one swoop makes sense, on paper at least.
Michael McClure, founder and CEO of a small brokerage in Michigan and the moderator of the well-known Facebook Group “Raise the Bar in Real Estate,” wrote in a Facebook comment that a purchase of a portal like Zillow by one of the real estate old guards would jump-start a franchise business in a big way.
“I’ve been saying for several years that Zillow could create a real estate franchise and probably sell hundreds of franchises fairly quickly on the strength of ‘join us and you’ll have instant access to all these leads,’ ” wrote McClure. “I think that might give those franchisees real muscle in recruiting agents.”
Safalow says it makes little sense to him, though, because agents not affiliated with a Realogy brand would likely walk away from advertising on Trulia, gutting its largest source of revenue (about 73 percent). Also, Safalow points out, Realogy, with about $4.3 billion of debt, would be a hard sell for shareholders, as the purchase would likely take a combination of stock and more debt.
And, Safalow said, Trulia’s EBITDA (adjusted earnings before interest, tax, depreciation and amortization) cash flow is not great enough to appreciably help Realogy, especially when the firm could replicate a lot of what Trulia does.
Safalow also pointed out that Trulia’s leadership have sold a lot of their shares in Trulia’s stock in recent weeks and months, which indicates that an imminent buyout at a higher price per share is not likely.
Probably the greatest benefit to Realogy from an acquisition of a Zillow or Trulia would be consumer traffic and lead generation.
In October, Realogy’s most popular consumer website, century21.com, drew 3 million hits from desktop computers, according to Experian Marketing Services. The same month, Zillow drew 53.5 million and Trulia drew 30.1 million hits.
