Zillow Inc – Trulia Inc Merger – Synergy Galore, Say Analysts

Updated on

Zillow Inc (NASDAQ:Z) is going to buy Trulia Inc (NASDAQ:TRLA), a deal which is spinning the heads of analysts in the tech space on Monday. The acquisition, which will value Trulia at $70 per share, a 25% premium on the company’s closing price on Friday, is a real positive for the resulting company, at least according to the analysts that have already published their opinions on the future of the entity.

The market appeared to gagree on Monday with shares in Zillow Inc (NASDAQ:Z) up by more than 2% on the deal at time of writing. Shares in Trulia Inc were also busy, rising from their $56 Friday close toward the offering price of $70, though not quite touching that number. At time of writing the company’s shares were trading at $66.45, an 18% rise for the day so far.

Analysts see synergy in Zillow – Trulia

In a note entitled 1+1=$200 Susquehana analyst Biran Nowak put a price target of $200 on the company’s shares. Nowak isnt really interested in what the deal does in the short term, he’s looking at what the resulting entity will be able to do with its market power. According to the report, “the real value of a combined entity comes long-term based on two factors: 1) enabling a larger share of homes sold — online penetration, and 2)capturing a larger share of agents’ enabled commission dollars as revenue.”

According to Susquehana the deal leaves agents with nowhere else to go in order to sell homes, and that means that the entire online home sales market, or thereabouts, will fall at the company’s feet. If the company can capture 20% of the real estate market in the United States it will put EBITDA at $815mn, valuing the company at more than $200 per share. Novak points to the 33% online share of travel commissions as evidence for the company’s ability to grow to one-fifth of the entire home-sales market.

Susquehanna wasn’t the only impressed party in the wake of the Zillow Inc (NASDAQ:Z) Trulio Inc (NASDAQ:TRLA) merger announcement. Over at Benchmark Daniel L. Kurnos put a price target of $205 on the new company and rated it at Buy. According to the analyst the firm is worth at least $210 a share if the deal goes through it’s the risks that might stop that happening that reduce hit total target to $178.

Zillow – Trulia may still fail to happen

There are two major parts to the Benchmark report: reasons why the deal makes sense and reasons why it does not. Delving into the positives is similar to the diagnosis contained in the Susquehanna report. The negatives may be more interesting as investors try to price the future of a Zillow Inc (NASDAQ:Z) Trulia (NASDAQ:TRLA) hybrid.

According to Kurnos, the future of the Zillow Inc (NASDAQ:Z) deal rests on two factors, the relationship between the management of the two companies, which have been at loggerheads in the past owing to legal conflict and competitive rivalry; and the fact that Zillow management has previously stated a wish to stay out of software.

Kurnos doesn’t believe that those obstacles are impossible to get over, but risk factors are what investors should be focusing on. It appears that analysts are united in their belief that the Zillow Inc (NASDAQ:Z) – Trulia Inc (NASDQ:TRLA) merge is a positive for the company, they’re not all convinced the deal will be easy to close, however.

Leave a Comment

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!