How Will Zillow (Z) Stock Be Affected By Its Acquisition of Trulia (TRLA)?

NEW YORK (TheStreet) -- Zillow (Z) announced that it acquired rival online real estate information provider Trulia  (TRLA) for $3.5 billion in stock on Monday.

Trulia shareholders will receive 0.444 shares of Zillow for every Trulia stock they own as part of the deal, equivalent to a combined one-third stake in the new company. 

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The acquisition is expected to close next year.

Zillow shares are down -2.9% to $154.27 in pre-market trading, while Trulia shares are up 16.7% to $65.78 today.

TheStreet Ratings team rates ZILLOW INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate ZILLOW INC (Z) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Z's very impressive revenue growth greatly exceeded the industry average of 11.5%. Since the same quarter one year prior, revenues leaped by 70.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Z has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 8.42, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for ZILLOW INC is currently very high, coming in at 92.64%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -9.44% is in-line with the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 67.0% when compared to the same quarter one year ago, falling from -$3.75 million to -$6.26 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, ZILLOW INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: Z Ratings Report
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