Homestore: The Hottest Thing In Real Estate

By Gene G. Marcial

More Ups Than Downs
Homestore (HOMS ) is an attractive turnaround story, says Frank Gristina of Avondale Partners -- and a play on the "migration of ad money from newspapers to the Internet." Through its Web sites -- such as Realtor.com, HomeBuilder.com, and Homestore.com -- the company offers the most comprehensive real estate listings.

Revenues come from advertisers catering to home buyers and from real estate agents. Homestore is a likely buyout target for Yahoo! (YHOO ), says one big investor, who didn't want to be identified. He says Yahoo is looking closely into Homestore's operation. Homestore's new management has resolved the lawsuits against the company. A 2002 class action alleged that Homestore falsified financial statements. On Mar. 17, a federal court approved a $91 million settlement. The company posted losses in 2002 and 2003. As housing booms and Web ads spread, the recovery will be fast, Gristina says.

Mark Argento of ThinkEquity Partners says Homestore is the only pure play in online real estate, with 98% of houses for sale posted on its database. He figures Homestore, now at 4.96, will earn 2 cents a share in 2004 on sales of $245 million, and 30 cents in 2005 on $288 million. Argento rates it "overweight." Yahoo won't comment on market speculation.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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