Here's why Realogy supports the Zillow, Trulia deal
“We are optimistic going forward”
Company executives noted during the second-quarter earning conference call that the two real estate websites have always been a marketing channel for them.
“We will enjoy the benefit of being their largest customer, and we expect that to continue,” the company said.
Currently, the acquisition is under some level of scrutiny given that Zillow and Trulia are powerhouses in the online property search space. The size of the deal is one factor cited by critics, as noted in a HousingWire blog by Senior Financial Reporter Trey Garrison.
“It’s entirely possible that Z could complete this acquisition, become a dominant force in real estate, and make shareholders lots of money. Just like it’s possible for a quarterback to run around for 15 seconds, launch a 70-yard bomb into the end zone, and win the game. Sometimes it happens,” said David Trainer a writer at financial blog New Constructs. “More often, though, something goes wrong.”
Trainer, who receives no compensation for his coverage of any stock or industry, says that both Zillow and Trulia have had consistently negative free cash flow, which they finance by further diluting their shareholders.
However, Realogy took a more positive stance, stating the deal should be attractive to both real estate agents and brokers.
For the company itself, executives explained that they have been in the business a long time and do not expect an improved media channel to change that.
Meanwhile, looking ahead, Anthony Hull, executive vice president, chief financial officer and treasurer of Realogy said, “While 2014 has not shown the dramatic growth that we recorded in 2012 and 2013, we have seen an improvement in the monthly seasonally adjusted annual rate of home sales over the past several months. Based on this upward trend we are optimistic about the outlook for the balance of 2014."
On the other side, analysts on the call questioned executives on the potential of the credit box expanding.
Back during his first major public address, Federal Housing Finance Agency Director Mel Watt said that the agency will not be directing Fannie Mae and Freddie Mac to lower limits for the mortgages they back, and the agency will focus more on affordability, loosening credit standards, and expanding access to credit, and less on what direction GSE reform takes.
However, executives of Realogy noted that while there was strength in his rhetoric in his speech, they have seen no evidence of that.
As a result, none of Realogy's forward-looking statements currently include the credit box opening.
“We know they have a desire to expand the credit box, but like so much in government, the timing is slower than what we would like,” executives said. “I don’t see anything happening in the third quarter. It likely won’t happen until the fourth quarter or next year.”