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Zillow to Buy Trulia for $3.5 Billion in Stock


There were several reports floating around today that Zillow is in talks to buy its smaller rival Trulia for a whole lot of money, despite spokespeople for both companies declining to comment.  But these rumors generally turn out to be true.

Yesterday, Trulia was valued at about $1.5 billion. Today, after the rumors surfaced, the stock climbed from around $40 to nearly $54 a pop, valuing it closer to $2 billion.

This would be a pretty quick exit strategy for the company, which only went public back in late 2012.

At the time, its shares traded in the high teens before climbing as high as about $50 a year later thanks to a broader stock market rally (and I suppose renewed interest in housing).

Zillow also got a boost on the news, with its shares rising more than 15%, or $19.29, to $145.76. Shares actually climbed as high as $157.61 on the merger rumors, but settled back down after an initial pop.

The company is now valued at about $5.8 billion, which in the world of tech stocks is nothing…

Possibly a $2 Billion Price Tag

Bloomberg reported that Trulia could fetch as much as $2 billion from Zillow, which wouldn’t give the stock much upside after it rocketed 32% higher today.

But based on the astronomical prices being paid to acquire companies today, I wouldn’t be surprised if it’s sold for even more.

It would create quite the real estate juggernaut, seeing that Zillow is already partnered with Yahoo! Homes. And Trulia purchased ActiveRain last year, which brings with it over three million blog posts about real estate, mortgage, and so on.

Additionally, Zillow acquired real estate software company Retsly earlier this month and NYC real estate portal StreetEasy last year.

Together, the two companies would hold a huge chunk of online real estate traffic, with the only real rivals Redfin and Move remaining.

Last month, Trulia CFO Sean Aggarwal called the online real estate realm a “very large category,” and noted that real estate pros spend a collective $28 billion annually on marketing.

And Zillow and Trulia are only doing about $500 to $600 million in annual revenue, so there’s plenty of room to grow.

Trulia’s 2014 revenue is expected to climb to $253 million this year, up 76% from a year earlier. It doubled the year before that. Its June traffic totaled about 31.6 million unique visitors, per ComScore.

Meanwhile, Zillow is expected to bring in $311 million, a 58% increase from last year. It apparently had 53.8 million unique visitors in June, thanks in part to its popular Zestimate.

Together, the pair accounted for roughly 89% of all traffic to real estate websites, which kind of screams monopoly.

But with other competitors still out there, the merger shouldn’t face any hurdles in that respect.

Why Is Zillow Buying Trulia?

My guess is simply to take out the competition now while it’s still relatively cheap. Trulia and Zillow are very similar websites, though Zillow has a much larger mortgage footprint.

But their real estate listing pages are pretty much indistinguishable, especially given the fact that Trulia has its own “Trulia Estimates,” which are just like Zestimates.

And they actually appear to be even more accurate than Zestimates, which isn’t good for a company that is known for them.

Additionally, both companies would be able to streamline operations and save lots of money by reducing redundancies and improving efficiency, all while creating a force to be reckoned with.

The timing is also ripe for a merger because investors are going bonkers for both stocks at the moment and housing is en vogue again, so the market supports a high-priced, dare I say frothy, merger.

The only question now is what the name will be? A Bloomberg editor jokingly asked if it should be named Zulia or Trillow?

Update: The rumors were true. This morning Zillow issued a press release revealing its $3.5 billion acquisition of Trulia. The company will fund the purchase with stock, and is expected to close the transaction in 2015.

Trulia shareholders will receive 0.444 shares of Zillow stock for each share of Trulia.

Both brand names will be maintained, and both CEOs will remain at their respective companies. As for why they’re buying Trulia to begin with, they mentioned faster innovation, greater access to free real estate market data, broader distribution, better value for advertisers, and finally, corporate cost savings.

Update II: The FTC has approved the proposed merger between Zillow and Trulia, and Zillow now expects to close the deal as early as February 17th, 2015. However, because both stocks have decreased significantly since the announcement last year, the actual value of the acquisition could be considerably lower.

(photo: Allan Ferguson)

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