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It’s official: Zillow will own Trulia

"Better agents make for better advertisers"

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Zillow (Z) today announced that it has entered into a definitive agreement to acquire Trulia (TRLA) for $3.5 billion in a stock-for-stock transaction.

The two companies will remain separate entities, though real estate agents will be able to advertise on both sites and gain access to combined tech efforts, the company's CEOs said this morning. The deal will require regulatory approval.

Rumors of the deal first surfaced last week.

Together, Trulia and Zillow’s 84.6 million unique visitors in May 2014 account for twice the number of unique visitors as the next three real estate websites put together, according to the Beyond Syndication 2014 report from Clareity Consulting.

“Consumers love using Zillow and Trulia to find vital information about homes and connect with the best local real estate professionals,” Zillow CEO Spencer Rascoff said. “Both companies have been enormously successful in creating compelling consumer brands and deep industry partnerships, but it’s still early days in the world of real estate advertising on mobile and Web."

During a conference call on the deal, Rascoff said the real ad potential for the two companies is working to move real estate marketing from offline to online.

"Better agents make for better advertisers," he said, adding agents still spend on mailers and billboards, but the mobile revolution will likely drive them to either Zillow, Trulia or both.

Both Zillow and Trulia generate the majority of their revenue through advertising sales to real estate professionals.

And this is the main area of focus, the companies say.

The two companies’ combined revenue currently represents less than 4% of the estimated $12 billion real estate professionals spend on marketing their services to consumers each year.

The companies say the two companies will remain separated. They say users of the two sites rarely overlap, for example.

According to a release, maintaining the two distinct consumer brands will allow the combined company to continue to offer differentiated products and user experiences, attract more users and maximize the distribution of free content across multiple platforms, apps and channels.

During the call investors were largely congratulatory, but a question was raised about the "premium" price Zillow is spending for Trulia. So far, neither company is hugely profitable.

For FY2013, Zillow had explosive revenue results, increasing 69% to a record $197.5 million. But the company posted an annual net loss of $12.5 million, mainly due to the cost of the advertising blitz the company put on. In FY2012, the company had a profit of $5.9 million.

Meanwhile, Trulia also saw a net loss in FY 2013. On rapidly growing gross revenues of $143.7 million, the company saw a net loss of $17.8 million.

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