Trying to find a new way to play the U.S. housing market’s recovery? Consider San Francisco-based Trulia (NYSE: TRLA) a real estate search website that boasts 31.4 million unique visitors and a rapidly growing subscriber base.
Canadians may find it odd that there’s a publically listed housing website company, but that’s only because most of our real estate searches are done via MLS. The U.S. market is so much larger that a number of websites are able to vie for homeowner eyeballs.
According to Experian Marketing Services, Trulia gets 7% of all real estate search traffic in the States, good for second place and close behind Zillow, a NASDAQ listed housing website company, which gets about 9% of real estate search-related traffic.
While it’s likely you haven’t heard of this $906 million market-cap company before, plenty of other investors have; the stock price is up 101% year-to-date. Normally, such a jump would have people expecting a pull back, but 71% of the analysts who cover this company still think it’s a buy.
On May 1, J.P. Morgan analyst Doug Anmuth upgraded the stock from a neutral to overweight, saying that while shares have appreciated significantly since January, “we think there’s still material upside.”
This company makes most of its money from subscribers—real estate agents pay between $40 and $100 a month to list properties, get better placement on the website and learn more about potential buyers. In Q1 the site had 27,920 subscribers, a 42% increase over the same period the year before. The average revenue per user (ARPU)—a key metric for a company like this—grew to $187, a 46% increase from the same quarter in 2012. Revenues also increased significantly, jumping 97% year-over-year to $24 million.
Anmuth thinks this kind of growth can continue. The upside, he says, will “be driven by strong increases in agent subscribers and ARPU, and expanded inventory which should roll out on both desktop and mobile by year-end.” He also points out that this was the second consecutive quarter of strong results and that “gives us increased confidence in the company’s ability to grow both agents and ARPU.”
Kerry Rice, an analyst at Needham and Company, also expects ARPU to grow especially as mobile usage picks up. Right now, only about 24% of subscribers are using its mobile product, but he thinks that will increase and, when it does, Trulia will be able to charge more for cell phone access. He thinks ARPU can rise above $250 by the end of next year.
Both Rice and Anmuth say the company can meet its Q2 projections. Trulia said it expects to bring in between $27.3 million and $27.7 million in revenues and, while that would be a year-over-year gain of about 60%—a lot less than the near 100% growth it saw this quarter—Rice thinks they’re being conservative with their numbers.
Expanded inventory, meaning more spots for agents to show their listings, will also help boost revenues and ARPU, writes Anmuth. He expects a 7% increase in subscribers in 2014 and a 10% jump in ARPU.
The stock price is currently at $32.50, but Anmuth and Rice expect it to hit $41 and $40, respectively, over the next 12 months. Of course, as much as this plays into the housing resurgence, it’s also a fast-growing tech stock, so any underperformance could send the share price in freefall.
In other words, this is a risker way to play the recovery—you may not want to put your retirement money here—but if the analysts are right, you should see big returns.
For more investing insights, follow Bryan on Twitter @bborzyko.