The old adage of what goes up must come down came home to roost for many of the list property portal. Last week the REA Group, iProperty (IPP), Trulia, Zillow and Rightmove all took a hammering on the stock market while only Move.com and the Australian minnow, OnTheHouse (OTH), bucked the trend and increased in value.
The REA Group was clearly the biggest losser shedding a massive AU$500m (yes half a billion) in value in just 7 days. Just a week ago the market cap was AU$4.18bn, now it is trading at a relative bargain value of AU$3.67 bn – a 12.2% decrease.
iProperty, while much smaller in terms of market cap than the REA Group, also dropped 8.6% in value over the course of the week. Amongst the US stocks, Trulia and Zillow shed 6.4% and 4.3% of value each.
The news of this decrease in value comes even though all those that lost value recently reported strong Q1 on previous Q1 revenue growth. Surprisingly, both Move and OnTheHouse both had the lowest year on year growth and increased value while the remainder, having demonstrated much stronger year on year growth, lost value. Congratulations have to go to Trulia and Zillow on their strong year on year growth.
Perhaps the best way to view this is the underlying revenue multiple that these businesses are now trading off. In the table above, we have used the last 4 quarters and the current market cap for all sites except Rightmove, in which the last 2 halves were used as they don’t report quarterly.
What we can see is that Rightmove continues to trade at a high 17.6x times historic revenues. Even if it delivers a 20% growth in revenues this year, it is still trading at 14.6x forward revenues. Zillow comes in second trading at 14.5x revenues, while Trulia and the REA Group are neck and neck at 11.5x and 11.9x revenues.
The iProperty Group with perhaps the most growth potential of the lot is trading at a comparative bargain of only 8.2x revenues.
Therefore the decrease in stock prices is a result of common senses coming back into the market and thus taking some of the enthusiastic optimism out of the stocks or it creates a buying opportunity for those that have a strong belief in the long term value creation of these stocks. Perhaps the iProperty Group represents the best value of the group as it has significant long term potential in the South East Asian market and doesn't appear to have all that value reflected in its share price today.