THE DAY AHEAD: Homestore.com quietly ties Lycos in market cap

Sometimes there's nothing better than slow -- at least in Internet time -- stock gains. Ask Homestore.com (Nasdaq: HOMS).

The company raised eyebrows in August when it priced its 7 million shares offering at $20 and promptly went to $22. From that uneventful IPO, the company has matched Lycos Inc. (Nasdaq: LCOS) in terms of market capitalization. The two stocks had a market cap of $3.7 billion at market close Wednesday.

Homestore.com: Big growth ahead?

You might know the Homestore.com brand better if it wasn't cooked up just a few weeks before the company filed for an IPO. Homestore.com is the company behind Realtor.com, HomeBuilder.com, SpringStreet.com and now Remodel.com. Once folks hear the roster of Homestore.com's sites most say "Oh yeah, those guys."

As you can also guess, Homestore.com (chart) is the largest real estate network on the Web and has inked exclusive partnerships with trade groups such as the National Association of Realtors among others.

Stuart Wolff, CEO of Homestore.com, said the company has benefited by building its market cap over a month instead of one day. The usual path for a .com offering is a big splash, the big fall, and then a gradual rise weather permitting.

Homestore.com's path was slow going early, but Wolff said it worked out great. Since Homestore.com didn't come out of the gates blazing, plenty of institutional shareholders were able to invest. Day traders and a lot of the retail guys stayed home because the momentum isn't there.

The end result? Homestore.com has achieved a Lycos-like market cap on relatively low average daily volume. Wolff didn't have specific percentages of institutional vs. retail investors, but did note that Homestore.com is one of the Amerindo Technology Fund's top five holdings.

The institutional backing isn't surprising. Despite some hefty losses, Homestore.com has a strong pedigree. Morgan Stanley was its lead banker shareholders include venture capital firm Kleiner Perkins Caufield & Byers, Fannie Mae and GE Capital. Translation: VC guru John Doerr and Morgan Stanley's Mary Meeker are in Homestore.com's corner.

The company's exclusive agreements with realtors have attracted some attention, but were largely overblown. You don't think Microsoft Corp. (Nasdaq: MSFT) would have inked those same agreements for its HomeAdvisor site do you?

Here's what Wolff had to say about other Homestore.com issues:

On strategy: The addition of Remodel.com Wednesday is a "key part of the puzzle," said Wolff. The goal is to get Homestore.com users when they're looking for a home and keep them coming for about seven years until they sell it. Then repeat the process, said Wolff.

On the revenue model: Wolff said most of Homestore.com's revenue comes from advertising and classified ads, but an e-commerce strategy is on deck. Although Wolff wasn't going into details he did note what the e-commerce move wouldn't include. No mortgage origination. "The transaction is complicated and we don't want to compete with our customers," said Wolff, who added the company is primarily a market maker.

But the company could sell just about anything having to do with a house: new roofs, new kitchens and new pools. "We're on the services side now, but that gives us credibility for the product side," he said.

On the losses: For 1998 the company reported sales of $19 million and a loss of $69 million. For the six months ending June 30, the company reported sales of $21.3 million and a loss of $50 million. Wolff attributed the losses to a lot of non-cash charges notably options and warrants to shareholders/partners.

So when will Homestore.com be profitable?

"We're aggressively moving toward profitability," said Wolf. "We're looking at the second quarter 2001. We're not saying 2002 like a lot of companies going public now."

On lawsuits: On July 28, Cendant Corporation, the parent company of the Century21, ERA and Coldwell Banker real estate franchises, filed a lawsuit against Homestore.com over listings. In June 1998, Cendant granted Homestore.com the right to obtain listing information from Cendant regarding new and existing homes for sale. But now Homestore.com gets all of its listings elsewhere and Cendant wants a piece of the action.

"The lawsuit is completely without merit," said Wolff.

Wolff added that the lawsuit is about one clause in the agreement and the rest of the company's relationship with Cendant is fine.

On the competition: Who keeps Wolff up at night? Microsoft (Nasdaq: MSFT) and its HomeAdvisor site. "We've done a good job of battling them, but whenever you're in Microsoft's space you notice," said Wolff.