With the $130
million (a fraction of the $2 billion sought) settlement between News
Corporation’s (NASDAQ: NWS) Move.com and juggernaut real estate/home-related
info marketplace developer Zillow (NASDAQ:ZG) (NASDAQ:Z) fresh in the air,
investors should be asking themselves how to carve off a slice of the once-again
hot real estate sector. REITs have been crushing it since 2000, positing 12
percent returns on average, according to JPM (NYSE: JPM) Asset Management.
Zillow, which bought up real estate search engine company Trulia (NYSE: TRLA)
recently and which has an exclusive partnership with Yahoo! Real Estate
(NASDAQ: YHOO), creating the biggest real estate ad network on the net – was
more than happy to pay the still-sizeable sum, and get back to capitalizing on
continued sector momentum.
A recent report by
IBISWorld (http://dtn.fm/1n1Rx) on the real estate sales and brokerage market
forecasts solid revenue growth over the next five years, extending the roughly
$122 billion or so in current annual revenues, and enjoying growth that is
in-line with the 5.6 percent growth seen over the preceding five years.
Residential currently makes up over two-thirds of the space, and it is worth
noting that this highly-fragmented sector, characterized by low market share
concentration, sees less than one-tenth of overall revenue go to the top four
companies, which include residential-focused Realogy (NYSE: RLGY), and
commercial-focused CBRE Group (NYSE: CBG).
Many analysts are
already saying the Fed will not raise interest rates this month
(http://dtn.fm/fB4ml), given the flagging economic data. Even if rates come up,
the consensus is that only cosmetic increases are likely to take place. Another
key trend here for the real estate sector is that agencies are stacking more
in-house brokers on their bench in order to tighten up throughput, ensure deals
close fast, and clients get attractive rates. It is also more and more
essential to hand-hold through the loan qualification, as difficulty in
obtaining mortgage financing ranked number one in the 2016 National Association
of REALTORS® (NAR) member profile (http://dtn.fm/o8Fss), meaning really
talented and motivated agents/brokers are more important than ever. The NAR
data also indicates that 55 percent of realtors are affiliated with an
independent company, further highlighting sector fragmentation, and suggesting
how dispersed the underlying fabric of movers and shakers is.
Also among the NAR
report is an important distinction about the use of social media among members,
showing that usage was up five percent, year-over-year, to 70 percent. This
single trend alone expresses how important it has become to have a
public-facing presence and why Zillow would gladly burn-off $130 million in
order to get back to capturing an ever larger chunk of the $12 billion plus
annual ad spend from real estate agent listings (http://dtn.fm/K2v0B).
Consumers these days have mobile phones with core clocks tens of thousands of
times faster than the ones we used to put a man on the moon, and those phones
can execute instructions 12 million times faster as well. These people have no
time or patience for traditional brick and mortar real estate offices. As a
natural result, real estate pros are fleeing the dinosaur model in droves.
With a market cap
around $92 million, you might not immediately think of holding company eXp
World Holdings (OTCQB: EXPI) as a looming sector disruptor with supernova
potential. But a closer look at how this company’s real estate brokerage
division, eXp Realty, has streamlined together a virtual collaboration and
socialization environment, powered by rich training assets and designed from
the ground up as the ultimate agent and broker-empowering cloud office platform
– and investors are likely to do a double take. The company’s Agent-Owned Cloud
Brokerage™ is not only readily available around-the-clock, it is able to drive
new levels of user immersion by providing a 3D environment capability, made
possible via a partnership with social virtual platform developer VirBELA. This
shared ownership model is extremely attractive to agents and so it is little
surprise that eXp Realty saw 84 percent agent growth last year.
A big reduction in
agent overhead and the alleviation of cumbersome, antiquated brick and
mortar-centric methodologies, combined with huge incentive for agents to bolster
troop overall strength in the form of an aggressive revenue sharing program
that rewards agents a percentage of gross commissions earned by joining
colleagues, create a perfect storm of momentum, the force of which is evident
in the company’s record revenue growth for Q1, reported in mid-May. EXPI saw a
more than doubling of revenues year-over-year in Q1 to just over $7.12 million
for the quarter. And let’s remember, this is after record financial results in
2015, where a 71 percent year-over-year increase in revenues brought the yearly
total to $22.87 million.
The future is so
bright that EXPI even doubled-down last year in a big way, pushing out into the
mortgage origination segment through its 90.5 percent-owned First Cloud
Mortgage, which is currently licensed in Arizona, California, New Mexico, and
Texas.
For more
information, visit the company’s website at http://investors.exprealty.com
MissionIR is committed to connecting the investment community with companies that have great potential and a strong dedication to building shareholder value. We know our reputation is based on the integrity of our clients and go to great lengths to ensure the companies represented adhere to sound business practices.
Sign up for “The Mission Report” at www.MissionIR.com
Please see disclaimer on the MissionIR website http://www.missionir.com/disclaimer.html
