HomeStore.com Plans to Turn Internet Real Estate Into Equity

Consumers have turned to the Internet to buy everything from stocks and computers to books, toys and cars. Thousand Oaks-based Home-Store.com Inc. is betting they’re ready to go online for the biggest purchase of all: homes.

The company has used a partnership with the National Assn. of Realtors to claim the leading position in providing online residential listings through its Realtor.com site. HomeStore.com also operates sites that focus on commercial real estate, rental properties and new construction.

The company, which has operated Realtor.com for less than three years, plans to sell 7 million shares of stock for between $8 and $10 each in an initial public offering scheduled for this week, raising as much as $70 million. After the offering there will be 67 million shares outstanding.

With the National Assn. of Realtors as a partner, HomeStore.com has amassed more than twice the number of home listings of its nearest competitor. That’s quite an accomplishment, as its rivals include Microsoft Corp.’s HomeAdvisor, ranked No. 2, and HomeHunter.com, a site launched by Classified Ventures, which is a collaboration of eight newspaper companies, including the Los Angeles Times’ parent company, Times Mirror Corp.

But Homestore.com’s lead in home listings is temporary, industry watchers say, and only buys the company a modest period of time to build its brand and develop a broader range of services.

A home is “a very personal, touchy-feely, high-consideration product that doesn’t lend itself to the Internet as neatly as other products, like cars, books and music,” said Chris Charron, an analyst with Forrester Research.

“The realization of the industry about a year ago was that staying in the home-listing space was not enough and that they needed to move into ancillary home-related services and products.”

Those areas include financing, repair, remodeling and landscaping. HomeStore.com says it has plans to enter all of those service niches.

“To support their business model, they absolutely need to offer a wide range of services to consumers and parlay the eyeballs they get from offering information about homes for sale into advertising and commerce revenues for other products,” Charron said.

In addition to owning Realtor.com, the company operates HomeBuilder.com, which focuses on the sale of new houses; SpringStreet.com, which has 6 million apartment listings in 50,000 buildings nationwide; and CommercialSource.com, a listing service for the commercial real estate industry.

HomeStore.com’s revenue sources include fees from agents, brokers, home builders, rental property owners and other advertisers. The company will post a basic listing for a house for free--and in some cases even pay to have the listing. But more elaborate postings, such as one with a three-dimensional walk-through of the online listing, cost the party displaying the home.

The company, which last month changed its name from RealSelect, is typical of Internet ventures. It has a limited operating history, has already spent millions of dollars in venture capital and warns four times in its latest prospectus that the company “may never achieve or sustain profitability.”

Last year, the company lost $69 million on revenue of $19 million, and losses continue to mount. During the first six months of this year the company lost $50 million on sales of $21.4 million.

Still, “they meet many of the criteria for a successful Internet IPO from start to finish, beginning with heavyweight private [venture capital] backers, such as Kleiner Perkins and GE Capital, all the way through to having significant strategic alliances,” said Gail Bronson, an analyst with IPO Monitor.

The company’s financial backers also include mortgage giant Fannie Mae and venture investors Whitney Equity Partners. The board of directors includes high-profile venture capitalist John Doerr of Kleiner Perkins, which is Home-Store.com’s largest shareholder, having invested $14.2 million.

The stock offering is being lead-managed by Morgan Stanley Dean Witter.

Despite the impressive list of investors, David Menlow of IPO Financial Network cautioned that “anything that speaks to the . . . real estate sector has been meeting with somewhat of a muted response” in the IPO market.

“This is really an area that’s going to take a lot of stroking” of investors to get them to pay up, he said.