Skip to content

Analyzing the Move, Inc. Earnings Call

March 5, 2008

Move, Inc. — the folks behind and Top Producer — held its Q4 2007 earnings conference call recently. The transcript is available on Seeking Alpha. I think it’s well worth your time to check it out in full.

Move did $286M in 2007, vs. $280M in 2006. Considering the shape that the real estate market was in during the second half of 2007, that’s quite an accomplishment. What’s more amazing is that Move grew Q4 revenues by 2.4% to $71.7M in 2007. Michael Long, Move’s CEO, boasted:

In 2007, the toughest real estate market in 50 years, we grew revenues in our core real estate businesses,, Top Producer, and New Homes, amid unprecedented disruption and volatility. Revenue from and Top Producer on a combined basis was 10% higher than 2006. For the year we also delivered the highest EBITDA margin in our history and generated positive cash flow for the third consecutive year.

They’re in great shape.

Beyond the fact that they’re making money during tough times, I found three really, really interesting things from that call.

1. Move’s View of the Future

One of the most interesting is the view of the future that the Move senior execs have of the industry. They’re not immune to market forces — apparently, they’ve elected to trim the efforts from their non-core assets., Top Producer, and New Homes made money — everything else seems to be sorta up in the air and on the way out.

This is Michael Long again:

Overall, we all have no perfect insight until when the real estate market will recover [however] we do believe that our market will come out of this severe down cycle fundamentally changed. There will be fewer but more professional real estate practitioners. We believe this cycle will prove to be a major catalyst for the [inaudible] online real estate category. Real estate has been lagging other industries in embracing the Internet and benefiting from a large scale shift and save of billions of offline advertising to a much more efficient way to reach consumers. Economic realities will drive this change. Most importantly we expect consumers will emerge from this cycle far more empowered and knowledgeable. The unpredictability and pain of the current real estate market is forcing consumers to do more research and achieve a higher level of understanding before transacting as well as learning how to more effectively manage their housing asset after purchase. This newly empowered consumer searching for a trusted source to help them make the best informed real estate decisions is our target. (Emphasis mine)

Move itself appears to shuttering some of their ancillary initiatives and refocusing on their core business with a “three pillar strategy”:

Number one, provide the very best online real estate search experience. That means the most housing options with rich timely property and neighborhood information that is incredibly simple to use. Number two, deliver unique proprietary content to extend our relationship with consumers throughout the move cycle. That means content that significantly improves consumer’s decision making and enjoyment of real estate connecting them to their neighborhoods, communities and professionals while converting them from real estate search users into recurring users. And then number three, understanding their behavior, demographics and consumer intent, so we can do a much better job improving the relevance and effectiveness of our advertising.

A couple of things.

Based on Move’s performance, and their future plans, it appears that companies offering real value to the agent/brokerage community will be successful.

FWIW, I agree 100% with the idea that when the industry reemerges from the current down cycle, we’ll see fewer and better agents. Question is, how and in what shape will that happen, and will the change be merely cyclical or more fundamental and lasting?

A good many current real estate agents are part-timers. The user profile I built back in the day while working at an ad agency was: Female, 40-55, homemaker, doing brokerage part-time. None of them are doing real estate brokerage to feed their kids; and yet, they will do one or two deals a year by getting friends and family to list with them, or hanging around the office and waiting for some web lead to come in.

Austan Goolsbee, now the Sr. Economic Advisor to the Obama campaign (but he still appears to be a decent well-respected economist), wrote about this issue back in 2005. The barriers to entry for real estate is far, far too low. The exam is too easy, and typically, there’s no other requirement. That there are 1.3 million Realtors in the United States is both evidence and symptom.

The result is that there are a lot of bad agents out there, who really don’t know anything, and haven’t put in the effort to become true experts and professionals. And even the good agents are often grouped together with all of the bad ones in the public’s mind.

Until one eliminates the “zero-profit condition” that is so prevalent in real estate brokerage, I don’t know that the industry will change much. Maybe the part-timers drop out for 2-3 years, but once the market turns around, they’ll be right back at it.

The obvious solution, it seems to me, is in the direction of fundamental changes either by the industry (NAR) or by the government. Make real estate licenses the equivalent of at least a Series 7 securities license; or perhaps even ratchet it up to make it the equivalent of a CPA designation. When it takes 150 hours of classroom work, and possibly a year employed full-time as a real estate agent, before getting a real estate license, that’s when one might say that the profession is truly professionalizing.

And yet, if you combine that insight — that there will be fewer and more professional agents after this market cycle — with what Move is doing, it raises several interesting questions.

While Move believes that there will be fewer agents, it is focusing on entirely consumer-oriented initiatives: best search experience, proprietary content, and consumer market research & analysis. There is no suggestion that Move will evolve to a paid-subscription model by the consumer; presumably, its businesses will continue to operate on a free-to-consumer, paid-by-the-professional model.

So if you’re anticipating a shrunken addressable market (fewer agents and brokers), but you’re focusing your attention entirely on the consumer… and you’re already #1 in the industry, wouldn’t that imply prices have to rise in order for Move to continue or even maintain its revenue growth? Either that, or Move is going into some new business models.

2. Move’s View of the Competition

A really interesting exchange occurred when one of the analysts asked Move’s team about its view on some of the competition. Mike Long responded:

I think it’s going to be very interesting to see how these businesses are going to figure out how to make any money frankly and we just haven’t seen anything. I think if we haven’t seen something it means it’s just as difficult to come up with any revenue model as one would expect it to be. So I don’t want to speculate on what’s going to happen but one could imagine because of the diversion between the public market valuations and what [inaudible] is prepared to pour into some of these businesses, next round may not look as attractive as prior rounds and they’re really going to have to figure out an exit.

Now… none of the Move team mentioned any competitors by name, but it seems relatively obvious which companies they’re referring to. As private companies, neither Zillow nor Trulia have any public financial information available. I know Zillow has raised $87M in venture funding to date, and Trulia has raised $17.8M, but as Move so obviously points out, funding != profitability.

The thing that makes this comment so interesting to me is that at the surface level, there isn’t a huge difference between Move’s core busines and Zillow and Trulia. All three are advertising supported, and the base of advertisers are real estate agents/brokers. All three are based around home listings as the primary content. Arguably, Zillow is trying to make Zestimates its signature content, but even they need listings to generate the traffic that generates the eyeballs that attract advertisers.

The only thing that sets apart from the other two (not to mention some of the newer players like Roost) is its official relationship with NAR and its lead in having negotiated deals with MLSes. Today, Realtor has the most listings, and has been around the longest, but that can certainly change.

(To be sure, the Top Producer business is very different, but it appears from the 10-K that most of the growth in 2007 was coming from the business.)

Seems to me that the initiatives that Move is planning on — topnotch user experience — are a response to the threat posed by the newcomers. Frankly, the unmentioned competitors brought excellent user experience and second-generation search to the real estate space. Trulia in particular, and the newcomer Roost, have focused on the actual search user interface to a degree that Realtor frankly has not. That, it looks like, is going to change.

But keep in mind that in the business, there’s nothing fundamentally different in the strategy that Move is pursuing vs. their unnamed competitors. In fact, one can argue that Realtor is trying to take the Fast Second strategy to beating down the pretenders to the throne.  Copy what’s been successful, but execute better, with more money and more resources, and beat the newcomers at their own game.

That will be an interesting thing to see: the venerable reborn as a truly compelling consumer experience.  Seems to me that Lorna Borenstein, the new President, is going to bring fire, pain, and thunder to the competition in the online real estate search space.  Read her comments — she seems very smart, seems to know what’s what, and has opened a new product development center in the Valley.

3. Keep An Eye On This

Lastly, and I don’t know that this is much of anything, there was an interesting piece of information regarding some of Move’s short-term investments. This is Lewis Belote, the CFO, again:

As of December 31st our cash and short term investments were $175.6 million which includes $130 million of investments in auction rate securities. These are high grade AAA rated student loan federal government backed auction rate securities issued by student loan funding organizations which loans are 97% guaranteed under FELP, the Federal Family Education Loan Program. Historically, these securities have been considered short term investments and were highly liquid as the interest rate reset every 28 days and allowed investors to either roll over their holdings or sell them at par. However as has been reported in the press earlier this month the auctions for auction rate securities backed by student loans failed. The auction rate securities continue to pay interest at LIBOR plus 1.5% and there’s been no change in the rating of these securities. As a result of the failed auctions these securities are currently not liquid. We may not be able to access these funds until a future auction of these investments is successful or they are redeemed by the issuer or they mature.

He went on to mention that there is no reason to worry, because there’s no evidence the investment is impaired, and that Move has plenty of money to carry out their business plan.  Certainly, their revenues and cashflow are both substantial.

That may all be true.  But at the same time, I just can’t fathom how a company is not affected when nearly 3/4 of its cash might no longer be cash.  The possible impact could be an inability for Move to make strategic moves such as acquisitions — although I suppose they could always use stock for that.  Plus, the fate of the real estate market and the credit markets these days appear to move in tandem.  A serious shock to the system that makes auction-rate securities possible could also bring on a major problem in the real estate sector.

Again, this is probably nothing, but it’s something I thought was worth keeping an eye out for future news.


10 Comments leave one →
  1. Move Fan permalink
    March 5, 2008 10:07 am

    Great analysis. I think you are spot on that Move should divest all non-core businesses like home plans, rentals, moving, even Welcome Wagon and potentially new homes.

    It needs to singularly focus on MLS homes.

    What do you make of their desire to focus on content? What kind of content? The neighborhood stuff? – that product is really heavy and slow. Are they going to put more behind blogs?

    Move has the oppty to hit it out of the ballpark. There’s no way over time that Trulia or Zillow can compete with them. The installed based of both users and agents is too big to overcome.

  2. March 5, 2008 10:17 am

    @Movefan –

    I was thinking of doing a longer post just on that point you raise: proprietary content. As it happens, I’m in a position to know a thing or two about that…. I’d just like to make sure I’m not divulging anything I shouldn’t.

    Suffice to say, generally, that proprietary content is at once the most valuable and the most difficult to acquire asset. So when Move talks about “proprietary content”, I wonder if they really mean it. They, among the, might be one of a few that could pull it off.

    Move could hit it out the park, yes. 2008 will be a watershed year for them, I think. But it’s a mistake to believe that their installed base is too big to overcome — both consumers and agents are fickle. It will be a question of “What have you done for me lately?” with both groups, and there’s no question the Young Turks are making waves.

    I just wouldn’t count Move out of the game. The earnings call made it clear to me that the management there gets it, understands the threat, and is committed to winning.


  3. Move Fan permalink
    March 5, 2008 10:24 am

    Good pts

    1 more thing – check out the severance agmt that Move filed today with Allan Dalton. $625K papyout, plus relocation, plus your equity vested, plus COBRA, plus $3K/month.

    Ha – that’s better then what Zillow and Trulia make a year w/ Ad Sense or EZAds!

    Good thing Move is cleaning house.

    Lastly, Top Producer – do you think Z and T are forced to get in that game? TP is a great on-ramp for featured listings. And no one has really challenged TP. Why can’t there be another in the agent CRM space?

  4. March 5, 2008 1:20 pm is making some changes… some of which you can see on their upcoming site:

    You can see some of the items they are experimenting with there. I think there will be a focus on UGC from both agents and consumers.

    I agree they could hit it out of the park but the this is still a wide open field since the leader only has a 9%- 10% market share.

    The item none of them have been able to solve is to show the real ROI of their advertising to the agents – in my opinion this is the real opportunity. Once they can do that, then agents will go with the source that provides them the best return even if it’s the most expensive.

  5. March 5, 2008 7:12 pm

    The best analysis I have ever read on Move and how they are positioned to compete (and win) in real estate 2.0. However, as a broker owner, I am concerned with the rising costs and lack of ROI data (as mentioned by Jessie B).

    Is it feasible to foresee NAR’s membership rally enough support to challenge the relationship between NAR and Move? What if T or Z became a valid competitor to Move, would NAR then shop for the best value for it’s members?

    I think it’s time the NAR brokers raised their voice and claimed what is theirs. These listings are our listings. We worked to get them, work to service them and work to close them. Shouldn’t we shop around for the best value in service providers?

  6. March 5, 2008 9:09 pm

    Brad –

    Unless I misread the 10-K, Move specifically mentions their contract with NAR. It has no termination date. And while there are conditions under which NAR can get out of the agreement, I doubt they are any that Move is likely to allow happen (for example, I think if traffic falls below 500K in a year, NAR can get out).

    Even if NAR’s membership were to revile, it still has more listings than anyone else in the online game right now.

    IF Move had continued to snooze while the Usurpers grew stronger, then I could see a situation 2-3 years from now where things could get dicey. But like I said, Lorna Borenstein strikes me as a valkyrie come to bring war to Trulia and Zillow and their ilk. I imagine that will soon be brimming with various features and functionality.

    None of that, of course, addresses your cost concern. I’d expect costs to go up, not down, in the future — if Move’s view of the future is to be believed. I somehow doubt they’d volunteer to miss earnings numbers to keep the prices low for you folks.

    Your last graf is the most interesting. Because the IP rights over the listing are of relatively dubious provenance. Move gets the data presumably from MLSes; do they own the data? Each broker? Each agent? The consumer?

    Curiouser, and curiouser. 🙂


  7. March 5, 2008 10:36 pm


    Thanks for the thoughtful feedback.

    My response to the IP rights…
    At least in my Atlanta market (FMLS), the broker owns the listing and agrees to co-op by participating in FMLS.

    Here’s how I see it works with Broker owning the listing (via written agreement)….
    Consumer agrees in writing to grant Broker the right to market a property for the better good of the consumer (with a bundle of expectations and rights and fees). Broker allows an Agent to act on its behalf (with a bundle of expectations and rights and fees) to execute this agreement with Consumer. Agent then submits listing to Broker who in turn submits the data of the property to the MLS (with a bundle of expectations and rights and fees). From there we could follow this data all the way to, Zillow, blogs, etc…

    But when you peel back the layers, the written agreement of the ‘listing’ terms is only between the Consumer and Broker and this agreement transfers rights TO THE BROKER. Therefore as a broker, I believe I own the IP of my listings. I choose to share it with others to obtain the best results for my consumer. The key word in that last sentence is ‘choose’. Currently, I wish I had better options than Move.

  8. Eric Krupnik permalink
    March 7, 2008 10:01 am

    With Allan Dalton out, what will become of the stealth project he was heading and what will become of David Lereah?

  9. Ernie Tabel permalink
    March 7, 2008 1:34 pm

    “With Allan Dalton out, what will become of the stealth project he was heading…”

    Move’s “New Business Venture” unit led by Allan Dalton has been officially dissolved.


  1. Notorious ROB picks up on some great… «

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: