Fine, you may say. Hubzu.com and homesearch.com are cheap, but who has ever heard of them?
Fair point. My counterpoint is this: Nationstar is owned by Fortress Investment Group (FIG), one of the savviest and best-connected private-equity firms on the planet. Altisource is run by Bill Erbey, a billionaire who has made his fortune in the real estate business over more than three decades. If these people see a future in online residential real estate, they have plenty of access to capital to try and overtake the brand recognition of Zillow. Zillow spends about $30 million a year on advertising. That's peanuts for the executives behind Nationstar and Altisource.
Many investors scoff at Zillow and Trulia, pointing out that they are not yet consistently profitable. Short interest at Zillow accounts for 45.5% of the float, while at Trulia its 30.7%. Indeed, one approach would be to short those stocks and simultaneously go long Altisource Portfolio Solutions and Nationstar.
Despite the skepticism, however, many sell-side analysts believe profits are more or less assured for Zillow and Trulia."This is where the online travel industry was over a decade ago," said Telsey Advisory Group's James Cakmak. No one disputes the viability of the online travel business any longer. Priceline.com (PCLN) earned $1.38 billion in the second quarter, up nearly 40% from a year earlier. I happen to think Cakmak is right in arguing online real estate will have similar success. But I also think the race to determine who will lead this industry is a long way from decided. Laugh at hubzu.com if you like, but the chance to buy a legitimate Zillow competitor plus another business 10 times as large for a quarter of the price sounds like a pretty good deal to me. -- Written by Dan Freed in New York. Follow @dan_freed