Before Reba posted her article on the upcoming House Values layoffs, I recently ran across an interesting article about HouseValues on MSN Investor. It was basically a press release from Zacks Investment Research that stated HouseValues (SOLD) made their list of the top 5 stocks to sell now. Needless to say, this is not a glowing recommendation.
Also during that same surfing session, I stumbled upon an article about AutoByTel (ABTL). At first glance, it may not be that germane to the issues that face HouseValues, but AutoByTel is essentially a variation of the HouseValues business model. AutoByTel’s business model is essentially, generate lots of internet traffic and sell leads to auto brokers/dealers. HouseValue’s business model is essentially, generate lots of internet traffic and sell leads to real estate agents/brokers.
A problem with this model (as the article noted), is that traffic acquisition costs are going up. The deals that a company like this are going to strike with Google, Microsoft, Yahoo or some other major internet portal that brings in a lot of traffic are increasingly low margin / high cost deals. After all Google, and it’s fellow portal competitors know what the value of their net traffic is (and it isn’t going to get any cheaper).
Furthermore, there’s the $50+ million gorilla on the horizon…. Zillow. They have a more customer centric business model, superior technology, lower head count expenses (last I heard they were about 100 employees), and would probably fare better in a beauty contest as well. Even if HouseValues were to reverse course by attempting emulate Zillow’s business practices, I get the feeling that they’d be less successful than Microsoft’s search efforts have been against Google.
Another problem, is that nationally the housing & mortgage market is cooling down. I guess this means there are fewer agents out there who are able to buy leads from the company (either that or there are fewer agents out who willing to buy leads, which portends an even bigger problem). It’d be interesting to see if this problem corrects itself when the housing market heats back up again or if the company has hit a strategic inflection point.
[photopress:sales_dropping.jpg,full,alignleft]What’s also interesting is ABTL has 377 employees (and $116.6 million in annual revenues), while SOLD has 522 employees (and about $101.9 million in annual revenues). Even though HouseValues just laid off 60 employees, it still feels there’s more head count there than what they need. Especially since their Selling/General/Administrative expenses are over 8 times what their Research & Development expenses are! For comparison sake, AutoByTel’s ratio is closer to 2.5 times, Microsoft’s ratio is a little under 2, Google’s ratio is a little over 2. It appears that the PHB (Pointy Haired Boss) hired too many sales drones and not enough Dilberts.
Frankly, if I ran the company, I’d probably try to get InterActiveCorp (IACI) to buy me. Why? InterActiveCorp is a diversified internet commerce company with 28,000 employees and had revenues of $6.6 billion last year. They own many popular web sites (Ticketmaster, Ask, Match.com, Home Shopping Network, Evite.com, Lending Tree, RealEstate.com), and they used to own Expedia, Hotels.com, Hotwire, and other travel related properties prior to their spinning off.
Because HouseValues would complement IACI’s LendingTree / RealEstate.com business units nicely and since a IACI spin off (Expedia) is already located in Bellevue, I’m sure there’s a way that IACI could extract more value out of the combined company that than HouseValue’s current management could do alone. Perhaps there’s a way in which the HouseValues employees who stuck around would only have to change their Kirkland commute to Bellevue commutes?
So is this the beginning of the HouseValues death spiral, or is just a temporary hiccup on the road to better days?