Homestore.com Stock Plummets on Warning
Homestore.com Inc.’s shares tumbled 54% after the company, which has more than 90% of home-sale listings on the Internet, said 2002 revenue will fail to meet analysts’ estimates.
The Westlake Village-based company’s shares fell $2.71 to $2.28 and are down 89% for the year. About 25 million shares were traded, more than 20 times the daily average. At least six investment banks cut their ratings on the company’s shares.
Homestore.com said Thursday that it had a loss of $106 million on revenue of $116 million in the third quarter. For 2002, the company expects revenue of $375 million to $425 million, below the $563-million average estimate of six analysts surveyed by Thomson Financial/First Call.
The company may suffer a cash crunch early next year as advertising and the housing market slumps, said Prudential Financial Inc. analyst Mark Rowen, who cut his rating on the company to “sell” from “hold.”
Homestore.com, which manages the Realtor.com Web site for the National Assn. of Realtors, has been struggling with a decline in Internet advertising. The company’s advertising revenue drop 44% in the third quarter from the previous quarter, and its three largest advertisers, including GMAC Real Estate, didn’t renew contracts, Rowen said.
“Cash will drop to precipitously low levels by year-end, and any shortfall in revenue from expected levels could cause a cash crunch at the company early next year,” Rowen said.
Homestore.com said it will have $50 million to $75 million in cash and marketable securities at the end of the 2001, down from $119 million at the end of September, Rowen’s report said. The company also has $90 million in restricted cash.
Although the company expects to save $150 million in operating expenses annually from job cuts and restructuring moves, Rowen said revenue often falls faster than expected when companies restructure, spurring additional rounds of cost cutting. The company will have “little room for error,” he said.
Homestore.com also said that AOL Time Warner Inc. isn’t delivering enough people to its Web sites as part of a five-year, $287-million marketing, content and distribution contract between the two companies, Rowen said. The company has paid 3.9 million shares to AOL and $20 million in cash for the contract.
