The possible acquisition of Trulia Inc. (TRLA) by Zillow Inc. (Z) will result in the online real state listing portals having a very significant hold of the online real state listing industry, a prospect that has raised concerns over the traditional brokers’ future.
Zillow, the market leader, is on talks to buy Trulia, the second-biggest company in the industry, for as much as $2 billion in cash and stock. If the deal closes, it will create an entity with unparalleled dominance in the industry. The clout can be judged by COMSCORE, Inc.’s (SCOR) user traffic on real-estate sites for the month of June; Zillow and Trulia top the list, having a total of around 85 million unique visitors (Zillow with 53.8 million and Trulia with 31.6 million). They are followed by Move Inc. (MOVE), with 23.8 million viewers.
The companies help buyers and renters find information on homes, but that is not their source of revenue. They generate income through advertisements and charging realtors to place their listings on the website. Agents pay these companies to have their contact information appear alongside searches of properties that are in their area. Both companies had massive revenue growth in the last quarter, with Zillow reporting revenues of $66.2 million in 1QFY14, up 70% year-over-year, and Trulia reporting revenues of $54.5 million, a rise of 127%. Since 2011, Zillow’s revenues have compounded at an annual growth rate (CAGR) of 73%, while Trulia’s have grown 93%.
There are concerns regarding the merger of the two companies. If the merger happens, the two companies will have a lot of power over real-estate listings and might raise the fee they charge from realtors. There is also speculation that the size of the combined company will allow them to get into the brokerage business, but both the companies have avoided this in the past.
Brokers have mixed sentiments regarding the deal. On one hand, they are the companies’ biggest customers, and rely on their services for information regarding customers and to list their offerings. On the other hand, they fear the competition from such online businesses to local ‘multiple listing services’ offered by brokerage companies, and concerns only rise as the magnitude of online businesses increases. The roles traditionally performed by these multiple listing services have been taken over by online firms, and this has diminished the power of brokerage companies.
However, online services may not entirely replace traditional brokerages because most buyers and sellers want someone to guide them through the tedious process of buying and selling a home. But, this reason should not discount the fact that online real-estate service providers are growing and capturing the market at a great pace, and may even eat into the traditional brokerages.