The $4 Billion Dollar Company

It’s been an exciting fortnight since Errol Samuelson shook up the online portal competitive picture by hanging up his hat and cleats at Move/Realtor.com and accepting a senior management position at Zillow. Much has been reported, and even more speculated, about the motives for the change, both from Errol’s perspective and from Zillow’s.$4 Billion Company

Then, when things started to settle down a bit, Curt Beardsley added salt to Move’s wounds by doing the same thing. Then the lawsuit, more reporting, more speculation, and a substantial rumbling of “what’s next” and “what is the unspoken conspiracy?”

So who won and who lost and what’s next? I’ve been working on a response to Rob Hahn’s proposal that NAR pony up some substantial cash and buy Move, essentially taking a public corporation private and thereby recapturing total control over their corporate brand and flagship banner website. I think Rob’s idea has some entertainment value, but would not work for a couple of reasons. First (and foremost), it would rely on NAR levying a special assessment of $250 per member and borrowing another $200 million to have enough cash for a buyout, including a nice premium to current shareholders. Would NAR members, half of whom did not close one real estate deal last year, actually agree to such a levy or would many of them walk?

Second, the payback of the loan depends on continuing to operate Realtor.com as a profit making venture. That’s the biggest flaw I continue to see in the current business model. I continue to believe Realtor.com can be a huge asset to NAR and its million members but only if it’s a core service paid for by dues dollars (or perhaps be RPR revenue or NAR’s investment in Second Century initiatives, if any of them eventually starts to make money) and not an advertising medium that sells ad services to members. That is the singular loudest complaint from Realtors about Realtor.com – “It’s our website. They shouldn’t sell us advertising. It should be FREE, because it’s our website.”

So I began to look at how possible it might be to convince the current Move board of directors they needed to take my advice and give back Realtor.com to NAR and make Move.com their lead portal. These are reasonable people, experienced business people with a roster of companies they have either served, helped, or directed that would be enviable for any company. Four of the directors (a majority of the seven member board) are independent, so they would/should have no conflicts of interest in voting for a proposal, however radical, that was in the best interests of the shareholders. Three are a little biased toward NAR and therefore might oppose such a change – current CEO Steve Berkowitz, former REALTOR (Grubb/Ellis, Coldwell Banker) current Chairman Joe Hanauer, and former NAR President Cathy Whatley.

Alternatively, if no one was able to convince the board to make that change, what were the chances someone could raise enough interest and money to make a run at the company – a hostile takeover in true Carl Icahn style. Perhaps a large franchise (Berkshire-Hathaway or Realogy might have enough cash) would buy it and use it as a basis for changing their online presence. The Realty Alliance is already looking for proposals to create a large national infrastructure for their cooperating brokers – perhaps they could buy Move and save themselves a lot of development time. I even looked at the possibility of a grass-roots movement starting with a couple of progressive, pro-active Realtors who want to raise the bar of professionalism by raising money on Kickstarter. But alas, I doubt that a national real estate portal would qualify under Kickstarter’s Guidelines (seems they have a prohibition against funding websites focused on e-commerce and business).

So then the thought struck me that perhaps a couple of the current major shareholders might be interested in increasing their holdings, perhaps even demanding a couple of seats on the board. So I started digging around for the current list of institutional shareholders (who, it seems, hold over 95% of the stock in Move) and aside from FMC, LLC (Fidelity Investments) that owns about 15% of the company (as of 12/31) there were no other major players with more than 3.5%. (FMC’s 15% represents about $93 million in stock holdings, but when you compare that to the $4.2 Trillion — with a capital T — in assets they manage, their Move stock represents about .00221% of their portfolio. Something to sneeze at?)

“Achoo!!”  “Gesundheit!”

I was getting a little discouraged trying to think of other options, so I started fooling around with the stock reports and looked at the changing positions of Zillow and Move on the NASDAQ since the chair shuffling began back on March 5. Here’s what I found.

Z vs Move

First, Zillow closed above $100 last Friday (3/21) for only the second or third time in their history. They hit $100 last September and have drifted below the century mark since.

The chart above tracks the percent of change in stock price for Move (red) and Zillow (blue) since March 5. They stay reasonably close from the time Errol announced his move until March 13 when Curt followed. Then stuff happened. Zillow started upward on a near 45 degree slope while Move held steady for about a week and then dropped off. The net effect, Zillow is up about 20% and Move down about 10%.

Details (text for those who hate charts):

Date

Event

Zillow

Move

3/5/14 Errol made “the move” (after market close)

$83.20

$13.12

3/14/14 Friday before Curt made “the other move”

$87.10

$12.30

Net effect of Errol’s move

UP $3.90
(4.7%)

DN $0.82 (6.25%)

3/17/14 Day of Curt’s “other move” and Move/NAR lawsuit filed against Zillow

$91.68

$12.37

3/21/14 End of week of turmoil

$100.24

$11.84

Net change from 3/17 to 3/21

UP $8.56 (9.33%)

DN $0.53 (4.25%)

Net effect of turmoil, since 3/5

UP $17.04 (20.5%)

DN $1.28 (9.75%)

3/21/14 Market Cap as of 3/21/14

$3.96 Billion

$465 Million

Whoa! Stop for a minute and take a look at that bottom line. That’s really what this whole process has been about. These are publicly held companies, companies in which people (and institutions, which we know because Mitt Romney told us so, are people too) invest their money in order to make more money. Investors in Zillow earned 20% on their investment in less than 30 days. Investors in Move lost 10% of their money in the same period.

By my calculation, Zillow is just one dollar and eight cents short in its share price of being a Four Billion Dollar Company.

But even more telling is this figure. In the seventeen days between March 5 and 21, while the real estate blog-o-sphere was fixated on why Errol and Curt moved and what Zillow would do next, Zillow stock gained $691 million in value. That’s 50% more than the entire Move corporation is worth ($465 million).

I hate to keep being the guy pounding nails in the Realtor.com coffin, but the more I look at this situation the fewer reasons I can find for anyone to want to buy Move.  Even NAR – at least not right now. The sinister plot may not be one spun by either Zillow or Trulia but rather by NAR itself. Their continuing shackles on how Move can operate R.com might just be the smartest play in the game. They could soon buy back control of their website, and a company of people to operate it, for pennies on the dollar.

Much as I hate to admit it, I think Rob’s advice is right: NAR should take Move private. But I would advise NAR to hold off on that special assessment. It just might not be needed after all.

For this post:
Cause: If you can’t see the mark in the poker game, then it’s you.
Effect: The card sharp may be the player you least expect. 

The next lion . . . the next hill

lion-zoo

The Council of Multiple Listing Services held its annual conference in Boise, ID this past week. In keeping with the high standards of excellence (which may be redundant, but I liked the phrase) of past conferences, our host, Greg Manship from Intermountain MLS, the local host, and his staff put on a top notch program. Many of the panels actually discussed real industry issues which in the past has not always been the case. That’s not a ding on CMLS. It happens at every industry conference. The panelists talk but ignore the multiple elephants that roam around the room.

Not this time.

One discussion on Friday led to much “chatter” in the halls, an unhealthy level of speculation on what was really being said, and a healthy level of panic and paranoia as MLS CEOs tried to figure out what to do next.

Let me explain.

The panel was titled Eliminating MLS and Broker Conflict, moderated by Bill Yaman of Imprev who did a masterful job of mediating as well as moderating. Panelists were Gregg Larson, CEO Clareity Consulting, Brian Donnellan, COO and CFO of MRIS, and Craig Cheatham, CEO of The Realty Alliance (TRA). Craig’s comments were the most impactful.

Suspicion, suppositions and speculation are the staples of much discussion in the inner circles of MLS leadership. MLSs seem to be overly concerned with identifying the next biggest threat to their continued existence and through that to the prosperity of their broker participants. But as the old adage goes, “Just because you’re paranoid doesn’t mean they aren’t out to get you.”

The Realty Alliance is an affiliation of about 70 major independent-minded brokerages, both non-aligned and franchise affiliated, that meet periodically to exchange views on industry issues and best brokerage practices. There are some huge players in this arena and collectively they represent over 100,000 agents, more than 10% of current NAR membership.

They have been involved in the debate over many MLS rules as modeled by mother NAR. It was impetus from TRA members that caused the MLS policy committee and eventually the NAR board to reconsider and then reverse their policy regarding “recognized search engines” being allowed to index IDX listing displays. Senior executives from both TRA and Realogy, this time working in unison  rather than opposition, served together on the multiple (no pun intended) presidential advisory groups that wrestled (albeit unsuccessfully, due in no part to the herculean efforts of the members) with the nuances of policy surrounding the extension of IDX rules into social media.

So it surprised some in the audience to hear that TRA had a laundry list of grievances they wanted MLSs to address. In uncondensed form Craig said then list ran 48 pages single spaced. My first question to myself was why so many and why now? Hadn’t TRA members aired many of their issues in the usual forums? Certainly not all of their grievances applied to all MLSs, so why we’re they not talking to their local MLSs about particular local issues instead of to a conference in general?

The answer to the latter was “They were talking” – not only at the local level but at the state and particularly the national levels as well. But there was a sense in the air that the time for talk was over, that TRA members had resigned themselves to the realization that talk was not only cheap but ineffective, that trying to have their voices heard and change policy from the top down through the established channels was a fruitless endeavor. How we got to this position requires a bit more explanation.

A Brief History of Chaotic Times

At the spring NAR in Washington DC, NAR modified its definition of “Core Services” (those that can be included in the base monthly fee of all participants whether they use such services or not) to include public facing MLS websites. TRA was not alone in their opposition. They were joined by many franchisors who felt MLS were (a) being unfair in charging all members for service that only served some of the members (listing agents, not buyers agents), (b) competed with similar efforts by brokers to publish compelling content and attract consumers, and (c) generally expanding their charter and mission “which introduces vagueness and inappropriate objectives.”

The process by which this policy was adopted was contorted, contentious, and (in the minds of many, not just big brokers) counterproductive. But it was adopted.

Subsequent to that, TRA published a guidance paper telling MLSs TRA’s Fair Display Guidelines would have to be followed in order for TRA firms (optionally) to allow their listings to be included in such a public website or not. Most industry observers felt these were fair guidance so there was little debate.

But the unexpected consequence of the debate over public websites was a resurrection of a number of grievances that TRA felt were unaddressed. Had there not been the huge turmoil at the national level over the co-issues of franchisor syndication and MLS public websites, perhaps TRA would not have piled on with more, “Oh, and while we’re at it, they do this too . . .” items.

Don’t shoot the messenger

To Mr. Cheatham’s credit, he explained to the audience that he was just the messenger and didn’t have a dog in this hunt except to deliver the message from TRA in unambiguous language. And he almost succeeded in delivering the message in cool, measured carefully crafted statements without interjecting distracting emotional appeals. I say ‘almost’ because as the Q&A session progressed, it was clear from the emotion in his voice that he felt very strongly about the points he was making as he summarized the gist of the 48 pages into a series of quick bullet points.

Among them (and I’m doing this from memory since I can’t type as fast as Craig speaks) MLSs should not site license products that compete with brokers offerings to their own agents; MLSs should not introduce new services without a courtesy notice to (better yet, a discussion with ) the brokers; MLSs should not block data feeds to the brokers or agents (it’s their data and they need it for their businesses); for those MLSs that do provide full data feeds they shouldn’t charge participants a second fee to receive them; MLS CEOs should not take it upon themselves to make decisions for brokers in any regard without proper due diligence and research; and MLSs should consolidate more to eliminate overlapping territories that force brokers to join many MLSs. There were more. CMLS has asked for the list and will publish it if they get chance.

Craig went on to explain that in the months since the public website debate TRA had contributed significant resources into studying these problems and gauging the feasibility of several options should the MLSs not be persuaded to change their tactics. He described in broad concept the “red button” analogous to the one that follows the president around and is connected to the nuclear arsenal.

And in a statement that some saw as a thinly veiled threat, Craig concluded with, “You have 10 days.” (Insert audible audience gasp here!) Subsequently it was proffered that the 10 days referred to the time until TRA meets again to make decisions on next steps, not 10 days until the bomb drops. (Insert audible audience Phew!) Even with that clarification, the “bomb” concerns persisted.

What kind of bomb?

What could that bomb possible be? Rob Hahn, 7DS Associates, posed a question to Craig by reading a comment appended to one of Notorious Rob’s essays on the wisdom (or lack thereof) of MLSs changing their focus away from B2B and toward B2C fearing it may trigger a revisit of the public utility question. He quoted from the blog comment:

And now you know why, when the Realty Alliance met this year, the major topic of conversation was all about finding a path out of the MLS by the largest brokers in the country. . . . and now you know why the largest brokerage firms in the US are all telling NAR the three way agreement needs to end, or at the very least be significantly modified, or they are going to find a way out of NAR completely.

and then asked Craig to comment. Craig did not comment directly, saying only that he could not confirm or deny speculation about the content of debate or discussion of options within the closed meeting room. He wasn’t being coy or playing games.  It was clear that he was under specific instruction from TRA as to what he could discuss and what he could not. However, most in the audience probably felt that was as much a confirmation as they could expect, but a confirmation none the less.

I’m sure most MLS CEOs in the audience were either confident the bullets weren’t meant for them or were in total denial that such complaints could apply to them. After all, the conference is composed for the most part of CEOs who know what the heck they’re doing or they wouldn’t be there. So I asked the panel whether there was a way to figure out, as an MLS leader, whether this list applied in any way to their individual system. Would Craig be willing to share not just his list of grievances, but the individual MLSs to which each applied if he had that info. Such level of detail was not available, so in the absence of detail Gregg Larson suggested all the MLSs, not just those in the room, call all their largest brokers, especially TRA brokers, on Monday and ask the Ed Koch question, “How am I doing?

So the countdown clock is running. T-minus seven days (perhaps less by the time you read this) and counting toward the next debate and perhaps a decision on what changes MLSs, Association owners, and even NAR need to make to to address avoid potential disruptions in the status quo.

What might that decision be? Speculation ran rampant in the halls, ranging from pulling out of IDX and syndication so their listings wouldn’t be seen on an MLS public site to pulling out of MLS altogether to demonstrate their total frustration with the institution and what they feel it is becoming.

But I can’t imagine all of the TRA brokers pulling listings off all internet marketing sites. Their sellers would revolt. Their agents would revolt. Maybe they’re thinking of interconnecting all of their own broker websites to create a mini-network within the Internetwork, so a consumer could search anywhere in the country where there is a TRA affiliate?

Then again, the answer might be right under our nose if the commenter on Rob’s blog is an informed source.  If there have been discussions between major brokerages and the highest leadership levels at NAR about changes to the three-way agreement or decoupling mandatory NAR membership from participation in what are now all-Realtor MLSs, then all the discussion about public websites and IDX indexing will seem like a bunch of children’s playground nattering.

I don’t know, but I’m looking forward to reading about the results of the meeting.

I mentioned in my inaugural post that I had a feeling something seismic was about to occur in our industry. But honestly, I didn’t think it would happen this soon after making that prediction. (Heck, I haven’t yet finished the full post on what that shock wave might look like.) This might not be “the event” but I’d put money on TRA making some serious moves between now and the annual NAR convention, this year in San Francisco in November, if they don’t see some demonstrable sign that the MLSs, the AORs and mother NAR are willing to open negotiations and address these deficiencies in earnest. Otherwise the descending lion might just be having an MLS sandwich for lunch.

billchee“There is a high probability that the Realtor organization will lose control and direction of the MLS as it currently exists. I view the current MLS situation as a few Chihuahuas fighting over a bone, unaware that a hungry lion is coming over the hill.

– Bill Chee, April 26, 1993 in Washington DC.

In the meantime, tempus fugit MLS execs. Time to start dialing for brokers.

~bb

For this post:
Cause:  A failure to communicate
Effect:  Duck and Cover 50’s style

This post is also available on Notorious R.O.B.