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Analyst Puts on 'Buy' List

Stocks: Web-based real estate firm has consistently beaten estimates and is becoming profitable.


In what is now a rare upgrade of an Internet stock, Goldman Sachs analyst Anthony Noto placed on his recommended list Tuesday because the Web-based real estate company has consistently beat analysts' financial estimates and is starting to make money.

Noto's upgrade of the Westlake Village-based company sent its shares soaring 19%, or $5.25, in early Nasdaq trading. But the stock gave back most of its gain to profit taking, ending the trading session up 69 cents at $27.62. operates a Web portal for real estate agents, home shoppers, home builders, contractors, architects and real estate lenders.

About 60% of Homestore's revenue comes from subscription dues paid to host the Web pages of real estate agents, a source of Internet revenue that's particularly attractive to Noto. Homestore controls about 95% of the home sale listings on the Internet, often through exclusive relationships with real estate brokerage companies and trade organizations. Internet home shopping has grown rapidly with more than 50% of home buyers scanning the Web for listings, Noto wrote. so dominates the business that the Justice Department opened an investigation in April seeking to determine whether the company had engaged in anti-competitive practices in gaining exclusive contracts from the nation's largest residential property listing services.

But the government did allow to complete its purchase of Cendant Corp.'s Move.come division for about $836 million in stock last month. With the Cendant listings, Homestore now has about 1.5 million home sale listings, almost double that of competitor

What makes Homestore attractive, when compared with many of the Internet companies that rely on fickle Web advertising, is what Noto calls "evergreen" subscription revenue from real estate agents. He compares it to the monthly subscription fees that Internet service provider America Online collects from its customers.

"We believe that Homestore has far greater visibility than most other high-tech companies in this current environment," Noto wrote is his report released Tuesday.

At a time many companies are warning Wall Street that they won't meet earnings estimates, Noto said Homestore has exceeded Wall Street's expectations for both revenue growth and earnings targets for six consecutive quarters. posted net income from continuing operations of $19.1 million in its fourth quarter, contrasted with an operating loss of $17.1 in the same period a year earlier.

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