Consolidation continues to sweep through the online real estate industry, with news this week that Rupert Murdoch’s News Corp. agreed to buy Move Inc. for $950 million in cash. But before the Australian media titan Murdoch swept in, Zillow took a look at Move Inc., operator of Realtor.com.
Speaking on CNBC’s Mad Money earlier this week, Zillow CEO Spencer Rascoff said they chose against going after Move, instead making the play to buy longtime rival Trulia for $3.5 billion.
“You know, the thing is on the Internet user experience rules and if you build a great product you end up with the audience lead. If you end up with the audience lead eventually advertisers follow. It’s very difficult to turn around a struggling brand online,” said Rascoff in reference to Realtor.com. “And, once audience starts (to) decline, we’ve seen this with many other Internet companies, it’s very hard to turn around. Trulia is a brand … on the ascendency. They’ve got 50 million unique users. Zillow has 90 million unique users. But, Zillow and Trulia are a lot bigger than Realtor.com.”
Earlier in the program, Rascoff noted that News Corp.’s buyout of Move Inc. likely will help Zillow. That’s because real estate agents will realize — if they have not already before — that Realtor.com is “no longer the realtor’s Web site.”
“The real estate industry will now realize that it’s Rupert.com and that makes them more likely to wanna partner with Zillow based on the size of our traffic and our business model. And, I think that’s good for us,” said Rascoff.
There’s certainly no love lost between Zillow and Move Inc. The two companies are locked in a legal battle over Errol Samuelson, the former Move executive who joined Zillow earlier this year. Move Inc. sued both Samuelson and Zillow, claiming that Samuelson held sensitive trades secrets and slacked off at Move prior to his move to Zillow. Samuelson did not sign a non-compete agreement, but even so a Washington state judge granted a preliminary injunction that essentially sidelined Samuelson from many of his duties at Move.
Interestingly, Mad Money host Jim Cramer also asked Rascoff what he would do if Yahoo CEO Marissa Mayer called and offered to buy Zillow. Rascoff responded that it’s still earning innings in the online real estate arena, and noted that given the pending Trulia deal it’s not the right time to sell.
Here’s the full transcript from the Rascoff appearance on Mad Money.
Spencer Rascoff, CEO, Zillow: Thanks Jim. Thanks for having me.
Jim Cramer: How are you today? Good to see you. Have a seat. Alright. Let’s cut right to it. Rupert Murdoch. Tough guy. People don’t like usually get again—go against him. He buys a principle competitor. What does it do to the landscape? What does it do for Zillow’s margins?
Spencer Rascoff: Well, I think what it means is that Realtor.com is no longer the realtor’s website. And, I think that the industry—the real estate industry will now realize that it’s Rupert.com and that makes them more likely to wanna partner with Zillow based on the size of our traffic and our business model. And, I think that’s good for us.
Jim Cramer: But why wouldn’t they try to pit you against …
Spencer Rascoff: Well, I mean, they can try but we have a large audience, we have a business model which is listing agent friendly, broker friendly, MLS friendly and this is why most every major real estate site—most every major real estate company in the country including Realogy, Keller Williams, ReMax and many others have partnered with Zillow. So, I think with the acquisition of Realtor.com that means more and more MLSs and agents and brokers will realize that Realtor.com is just another portal and they ought to work with Zillow.
Jim Cramer: Now, you did—there are numbers that have come out. Looks like the com score August traffic. You are growing much faster.
Spencer Rascoff: We are. I mean we started this company 9 years ago and from a standing start we zoomed past the competition. We’re the largest real estate site in the category. We’re gaining share each and every quarter. So, we keep growing.
Jim Cramer: Do you—did you ever consider buying Realtor.com. And I ask that is because you told me in the spring that you wouldn’t buy Trulia. You would destroy Trulia then you told me yes it was a good idea to buy Trulia cause the time was right.
Spencer Rascoff: We did consider buying Realtor.com.
Jim Cramer: You did?
Spencer Rascoff: Yes. We did. And, we did consider buying Trulia and you know the thing is on the Internet user experience rules and if you build a great product you end up with the audience lead. If you end up with the audience lead eventually advertisers follow. It’s very difficult to turn around a struggling brand online. And, once audience starts decline, we’ve seen this with many other Internet companies, it’s very hard to turn around. Trulia is a brand with on the ascendency. They’ve got 50 million unique users. Zillow has 90 million unique users. But, Zillow and Trulia are a lot bigger than Realtor.com.
Jim Cramer: Why weren’t you able to ever destroy Trulia?
Spencer Rascoff: Well, we separated ourselves quite a bit such that when we eventually bought them the exchange ratio was such that Zillow shareholders received two-thirds of the company. Trulia shareholders received one-third of the company. So, it’s not about destroying them but it is about having grown Zillow quite a bit bigger and now we think Trulia will be a great additional brand within the Zillow family. So, we’ll operate it, once the deal closes, as a separate brand. Some consumers will choose Zillow. Some will choose Trulia and advertisers will buy media from Zillow, Inc. and the ads will serve on both sides.
Jim Cramer: Will there be enough inventory? What percentage of the sites are already locked up or blocked out some could say by individual realtor?
Spencer Rascoff: Our traffic has grown so quickly that we have lots of inventory. Lots of ads to sell. And, that’s when we went public we had 15,000 agents spending about $240 a month advertising. Today we have 60,000 agents approximately. So, 4x growth spending over $300 a month. So, the number of agents keeps growing and as you mentioned at the start of the segment here the revenue per agent continues to grow as well.
Jim Cramer: Now, stock down 50 so I try to figure out what did it. Now, maybe some people felt like you paid too much or you had arbitrage. But, how bout these. I spoke with Professor Shiller yesterday Nobel Laureate. He said, listen the price of homes are peaking. We know that mortgage refi’s [phonetic] are down a lot. You’ve addressed that because you’ve cut that mortgage business that you do. But, is it just possible that there is another slow down coming and that people won’t be looking as aggressively for homes?
Spencer Rascoff: I’m not that worried about that. You know what’s happening nationwide with housing is home values are increasing about 5% year over year and we forecast only a 3% appreciation. So, Shiller’s right that home values are slowing but the migration of consumer shopping from offline, out of print and on to online and onto mobile which is where Zillow is really the clear leader, I think that swamps any potential real estate slow down but regardless we’re not forecasting a real significant slowdown. This is a—it’s kind of a choppy real estate market. Some parts of the country still growing very quickly. Others not growing as quickly. But, the real estate market overall is growing more slowly than it was a year ago but it’s not in a housing recession.
Jim Cramer: In San Francisco we know has peaked according to Shiller. Does your usage in San Francisco drop?
Spencer Rascoff: No. Not at all. Doesn’t go away.
Jim Cramer: Now, how about correlations. You told me once you were gonna spend a lot of money on advertising. I got worried about an arms war. I watch a lot of NFL football. Is it working? You spend a lot of money on NFL football.
Spencer Rascoff: We do advertise a lot. We’re spending around $75 million in advertising this year. And, last year we spent over $35 million in advertising. It’s working. You see it in the audience numbers. You see it in a traffic growth. You see it. Zillow is the largest real estate site out there and it’s because we have a great product though we’ve also spent a lot of money in advertisement.
Jim Cramer: Okay. Talk to me about StreetEasy. In the most recent [unintelligible] looks like that was a good buy. You’re starting—New York-centric that I think New York was a market that you weren’t doing well in. How’s the amalgamation?
Spencer Rascoff: It’s fantastic. We’ve …
Jim Cramer: You had to do it though. Right? You admitted to me you had to do it.
Spencer Rascoff: Well, we did. I did. So, Zillow was the largest real estate site in every city except in New York where StreetEasy had 14 times the number of listing pages as Zillow. So, StreetEasy is a incredible brand for New York. A year ago we bought it for $50 million. We took the Zillow playbook to New York. That means focus on mobile, mobile, mobile. And, so over the last year we made the website free. StreetEasy used to have a pay wall. We’ve removed that. We launched a mobile website. A completely responsive mobile website and then iPhone, iPad and Android Apps for StreetEasy. A year later the StreetEasy Brand, audience, registrations, number of leads to emails. Email leads to real estate agents are way up. And, now, it’s time to build a business. So, I couldn’t be more excited about StreetEasy in New York.
Jim Cramer: Last question. I’m Marissa Mayer from Yahoo. I just got $5.8 billion in tax. I’m not a dominant player in any particular aspect. I need to dominate something. I pick up the phone. I call Spencer Rascoff and say this is the call of your dreams name your price. Is there a price?
Spencer Rascoff: Well, I guess there’s always a price for any asset whether it’s your home or your company.
Jim Cramer: This could be a good deal for you. You could start another company. You could stay with them. But, this is how I would, you know, this is how I would turn my company around.
Spencer Rascoff: Yeah. I mean, I don’t know. For us we feel like we’re still in the pretty early innings with the Trulia acquisition, we have so much further to go so that’s my focus. I don’t think it would be the right time to sell.
Jim Cramer: Very good. That’s what I need to know. That’s Spencer Rascoff, CEO of Zillow [unintelligible]. Always entertaining. Always forth full. Thank you so much Spencer.
