Homestore Shares Sink to Year Low

Shares of Westlake Village-based Homestore.com Inc. sank by more than 12% and hit a 52-week low Tuesday amid investor concerns over consumer confidence.

The sharp drop in the shares of Homestore.com, the largest source of home-sale listings on the Internet, took place during a broad market sell-off that hammered many already-depressed technology and Internet stocks.

Homestore.com shares fell $2.30 to $16.30 on Nasdaq.

The stock had been rallying early in the summer, in part thanks to surprising strength in home sales in an otherwise weak economy. But the share price has tumbled by more than 50% just since mid-July, despite praise from some Wall Street analysts and the 5-year-old company’s dominant role in the fast-growing online marketplace for residential real estate.

Its network of Web sites includes Realtor.com, the official Internet site of the National Assn. of Realtors. In the last 18 months the company has invested heavily in acquisitions and marketing. As a result, almost 10% of all Internet traffic flows through its sites, according to a report last week by Salomon Smith Barney Inc.

“Homestore has some of the leading tools” to market properties on the Internet, said Lanny Baker, an Internet research analyst at Salomon Smith Barney.

But recent signs of weakness in the housing market have worried some investors in housing-related stocks. Tuesday’s report of an unexpected decline in consumer confidence raised new concerns about home sales.

Company executives say they also have been caught in the ongoing backlash against Internet stocks.

“I think we are getting hit by the shrapnel of the other companies,” said Homestore.com Chairman and Chief Executive Stuart Wolff.

Homestore.com has faced some scrutiny in recent months that has clouded its performance.

After a months-long investigation, the Justice Department in July terminated a probe into possible anti-competitive business practices by Homestore.com without taking action against the firm.

The agency’s antitrust unit had been investigating Homestore.com’s business strategy, which includes exclusive contracts with many of the country’s largest residential property-listing services.

Government investigators also had been reviewing certain Homestore agreements with Cendant Corp. In February, Homestore bought Cendant’s Move.com unit for $900 million in stock, joining the top two residential real estate sites on the Internet.

In early July, the company was one of several cited in a “Heard on the Street” column in the Wall Street Journal on the conflicting sets of measurements industry analysts and executives have used to track earnings performance.

Homestore.com and other firms generate a separate “pro forma” set of earnings that exclude, for example, the cost of giving stock to its business partners in return for marketing. For the second quarter, ended June 30, for example, the company claimed pro forma earnings, excluding certain charges, of $14.5 million. But in reporting its bottom line--its net income--the company posted a loss of $72.1 million.

Wolff said the pro forma earnings are simply another tool investors can use to measure performance, not a way to pump up results.

“We don’t tell investors what’s important and what’s not,” Wolff said.

Last week, the report issued by Salomon Smith Barney said the company will have to work harder to get paying subscriptions from the thousands of agents affiliated with Cendant, which sells 21st Century, Coldwell Banker and ERA real estate franchises.

About 32% of the Cendant agents who receive Homestore’s services for free would pay subscription fees, according to a Salomon Smith Barney survey. So far, Cendant has been paying for its agents’ subscriptions at a reduced rate, but that agreement expires next spring, Baker said.

Even if most Cendant agents do not pay for the service, the financial impact on Homestore.com would be minimal, Baker said. “This is by no means a sink-or-swim event.”

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Bloomberg News was used in compiling this report.