Zillow Group, Inc.
TRULIA, INC. (Form: 10-K, Received: 03/02/2015 06:30:42)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934

For the fiscal year ended December 31, 2014

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-35650

 

 

Trulia, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware   20-2958261

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

535 Mission Street, Suite 700

San Francisco, California 94105

(Address of principal executive offices) (Zip Code)

415.648.4358

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, par value $0.00001 per share

 

The New York Stock Exchange

(Title of each class)   (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    Yes   x     No   ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act:    Yes   ¨     No   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

The aggregate market value of voting stock held by non-affiliates of the registrant was $727,949,559, as of the end of the registrant’s second fiscal quarter (based on the closing sales price for the common stock on the New York Stock Exchange on June 30, 2014). Shares of common stock held by each executive officer, director, and holder of 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of February 13, 2015, 38,519,391 shares of the registrant’s common stock, $0.00001 par value, were outstanding.

 

 

 


Table of Contents

Trulia Inc.

Annual Report on Form 10-K

For the Fiscal Year Ended December 31, 2014

TABLE OF CONTENTS

 

         Page  
  PART I   

Item 1.

  Business      3   

Item 1A.

  Risk Factors      18   

Item 1B.

  Unresolved Staff Comments      34   

Item 2.

  Properties      34   

Item 3.

  Legal Proceedings      34   

Item 4.

  Mine Safety Disclosures      35   
  PART II   

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     36   

Item 6.

  Selected Financial Data      40   

Item 7.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      43   

Item 7A.

  Quantitative and Qualitative Disclosures About Market Risk      70   

Item 8.

  Financial Statements and Supplementary Data      71   

Item 9.

  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      109   

Item 9A.

  Controls and Procedures      109   

Item 9B.

  Other Information      112   
  PART III   

Item 10.

  Directors, Executive Officers and Corporate Governance      113   

Item 11.

  Executive Compensation      123   

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     139   

Item 13.

  Certain Relationships and Related Transactions and Director Independence      141   

Item 14.

  Principal Accountant Fees and Services      145   
  PART IV   

Item 15.

  Exhibits, Financial Statement Schedules      145   


Table of Contents

As used in this Annual Report on Form 10-K, the terms “the Company,” “we,” “us” and “our” refer to Trulia, Inc., unless the context indicates otherwise.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about:

 

   

our future financial performance, including our revenue, cost of revenue, gross profit or gross margin, operating expenses, ability to generate positive cash flow, and ability to achieve and maintain profitability;

 

   

the sufficiency of our cash and cash equivalents to meet our liquidity needs;

 

   

our ability to increase the number of consumers using our website and mobile applications;

 

   

our ability to attract and retain real estate professionals that subscribe to our products;

 

   

our ability to increase revenue from real estate professionals subscribing to our products;

 

   

our ability to attract and retain advertisers that purchase display advertising on our website;

 

   

the continued availability of home listing and other information relevant to the real estate industry;

 

   

the growth in the usage of our mobile applications and our ability to successfully monetize this usage;

 

   

our ability to develop and deploy new features and products and provide a superior user experience;

 

   

our ability to foster the growth of user-generated content;

 

   

our ability to capitalize on strategic and adjacent opportunities;

 

   

our ability to achieve the anticipated benefits of the Market Leader acquisition;

 

   

the extent of disruption to our business caused by the merger with Zillow and its effect on our strategic relationships;

 

   

the effects of the market for real estate and general economic conditions on our business; and

 

   

the attraction and retention of qualified employees and key personnel.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual

 

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Report on Form 10-K. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

 

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PART I

 

Item 1. Business

Overview

Trulia is redefining the home search experience for consumers and changing the way that real estate professionals build their businesses. Our marketplace, delivered through the web and mobile applications, gives consumers powerful tools to research homes and neighborhoods and enables real estate professionals to efficiently market their listings and attract new clients. We believe we deliver the best home search experience by combining our superior user interface with our comprehensive database of real estate properties, local insights, and user-generated content. We also offer a comprehensive suite of free and subscription products that provide real estate professionals with access to transaction-ready consumers and help them to grow and manage their online presence. In the year ended December 31, 2014, we had 48.0 million monthly unique visitors. As of December 31, 2014, we had more than 540,000 active real estate professionals in our Trulia marketplace and 181,000 active real estate professionals using our Market Leader software and services. Approximately 79,300 of these real estate professionals were paying subscribers (assuming 20% overlap between Trulia subscribers and Marker Leader’s premium subscribers).

We empower consumers to make more informed housing decisions by delivering unparalleled insights and information on homes, neighborhoods, and real estate professionals through an intuitive and engaging user experience. Our large, continually refreshed, and searchable database contains more than 114.0 million properties, including 3.0 million homes for sale and rent. We supplement listings data with local information on schools, crime, and neighborhood amenities to provide unique insights into each community. In addition, we harness rich, insightful user-generated content from our active community of contributors, which includes consumers, local enthusiasts, and real estate professionals. With more than 16.6 million unique user contributions, we believe we have the largest collection of user-generated content on homes, neighborhoods, and real estate professionals.

We enable real estate professionals to better promote themselves and their listings, connect with transaction-ready consumers and manage ongoing relationships with potential buyers through our online and mobile marketing products, including personalized, customer-branded websites with multiple listing service integration that are optimized to generate consumer response. Our free products allow real estate professionals to build their personal brand by creating an online profile, contributing content to our marketplace, leveraging social media for endorsements, and establishing their presence through mobile features such as “check-ins.” Our subscription products provide a comprehensive end-to-end platform for real estate professionals, enabling them to increase their visibility, promote their listings in search results, target mobile users, generate more highly qualified leads from our large audience of transaction-ready consumers, and effectively manage these leads until a transaction has closed. We further enable real estate professionals to cultivate clients and leverage a library of sales and marketing materials in order to design, create, publish, and manage their own personalized marketing campaigns through our proprietary customer relationship management products. We believe that our consumer audience is highly motivated and ready to purchase homes, as supported by our surveys conducted between January 2014 and December 2014 in which 75% of over 391,000 respondents contacting real estate professionals through our marketplace indicated that they are planning to move in the next six months, and 38% of over 267,000 respondents stated that they are pre-approved for a mortgage. We believe that the combination of our compelling solution with our transaction-ready audience results in a high return on investment for real estate professionals who purchase our subscription products.

We are a leading mobile platform for the home search process and mobile devices are increasingly critical to consumers and real estate professionals. We have introduced iPhone, iPad, Android Phone, Android Tablet and Kindle Fire applications that provide tailored mobile experiences, which has led to rapid growth in the mobile use of our solution. In the year ended December 31, 2014, our aggregate mobile monthly unique visitors were 23.7 million across Trulia and our wholly owned subsidiary Market Leader, Inc., an increase of 67% over 2013. Our mobile users are more likely than our web users to contact real estate professionals through our marketplace.

 

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Our online marketplace is continuing to experience growth. Monthly unique visitors to our marketplace increased to 48.0 million in the year ended December 31, 2014 from 37.8 million in the year ended December 31, 2013, or a 27% increase, and our subscribers increased to approximately 79,300 (assuming a 20% overlap with Market Leader’s premium subscribers) as of December 31, 2014 from 59,700 as of December 31, 2013, a 33% increase. Our efforts to maintain or increase consumer traffic and subscribers include the February 2014 launch of a national marketing campaign that is designed to attract serious home buyers and sellers to our marketplace and that we expect will enable us to connect even more transaction-ready consumers with real estate professionals.

We generate revenue primarily from sales of subscription products to real estate professionals. We also generate revenue from display advertising sold to leading real estate and consumer brand advertisers seeking to reach our attractive audience. For the years ended December 31, 2014, 2013 and 2012, we generated revenue of $251.9 million, $143.7 million and $68.1 million, respectively. During the same periods, we had net losses of $75.8 million, $17.8 million and $10.9 million, respectively.

On July 28, 2014, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Zillow, Inc. (“Zillow”) and Zillow Group, Inc., (f/k/a Zebra HoldCo, Inc.) (“HoldCo”), pursuant to which Zillow acquired us on February 17, 2015. Pursuant to the Merger Agreement, both we and Zillow became wholly-owned subsidiaries of HoldCo, which series of transactions we refer to as the Zillow Merger.

Upon completion of the Zillow Merger, (i) each outstanding share of our common stock was converted into the right to receive 0.444 of a share of Class A common stock of HoldCo; (ii) each outstanding share of Class A common stock of Zillow was converted into the right to receive one share of Class A common stock of HoldCo; and (iii) each outstanding share of Class B common stock of Zillow was converted into the right to receive one share of Class B common stock of HoldCo. The Class A common stock of HoldCo has one vote per share and the Class B common stock of HoldCo has ten votes per share, similar to the former capital structure of Zillow. In addition, subject to certain exceptions, each Trulia stock option, restricted stock unit and stock appreciation right outstanding immediately prior to the consummation of the Zillow Merger, whether or not vested and exercisable, was assumed by HoldCo and converted into a corresponding equity award to purchase, acquire shares of, or participate in the appreciation in price of, HoldCo Class A common stock. The terms of each assumed equity award are the same except that the number of shares subject to each equity award and the per share exercise price, if any, was adjusted based on the exchange ratio per a formula set forth in the Merger Agreement.

On September 12, 2014, HoldCo filed a Registration Statement on Form S-4 with the SEC to register the shares of HoldCo’s common stock to be issued to shareholders of Zillow and stockholders of Trulia as consideration in the acquisition in exchange for the Zillow and Trulia common stock. The Registration Statement on Form S-4 was declared effective by the SEC on November 17, 2014. On December 18, 2014, Zillow’s shareholders and Trulia’s stockholders approved the Zillow Merger. In connection with the closing of the Zillow Merger on February 17, 2015, Trulia filed an application on Form 25 with the SEC to remove Trulia’s common stock from listing on the NYSE and from registration under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Trulia intends to file a certificate on Form 15 requesting that its reporting obligations under Sections 13 and 15(d) of the Exchange Act be terminated. HoldCo Class A Common Stock began trading on the NASDAQ Global Select Market on February 18, 2015.

 

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The Trulia Marketplace

Our marketplace provides the following key benefits for consumers, real estate professionals, and advertisers:

Key benefits for consumers

 

   

Large, continually refreshed, searchable database of homes for sale and rent. We provide consumers with access to a large, continually refreshed, and searchable database of properties. We enable consumers to customize their searches with property-specific filters to obtain up-to-date listings that are rich with property facts, price, and sale data.

 

   

Trusted insights, social recommendations, and proprietary analytics that provide local context. We provide consumers with local insights, critical to a successful home search, not available elsewhere on an easy-to-use and comprehensive basis. These insights include information about schools, crime, neighborhood amenities, and real estate professionals.

 

   

Anytime and anywhere access . Our marketplace is accessible anytime and anywhere on the web and on major mobile platforms. Since the introduction of our first mobile application in 2008, mobile use of our marketplace has grown rapidly.

Key benefits for real estate professionals

 

   

Broad reach to transaction-ready consumers. We provide real estate professionals the ability to connect with our large audience of transaction-ready consumers at scale on the web and through our mobile applications. We believe that a large portion of consumers using Trulia do not use our primary competitors’ websites, and that this enables real estate professionals on Trulia to effectively identify and market themselves to consumers not easily found anywhere else.

 

   

Products that boost presence and deliver high-quality leads . Our free products enable real estate professionals to create and manage an online profile, promote their personal brand with consumers by contributing content to our marketplace, and leverage social media for endorsements. Our subscription products enable real estate professionals to boost their visibility, promote their listings in search results, and generate more high-quality leads from potential home buyers.

 

   

Comprehensive end-to-end software-as-a-service-based marketing services . We provide software-as-a-service customer relationship management (CRM) tools, personalized websites and marketing tools to help our real estate professional customers manage and cultivate prospects. By automating many of the repetitive tasks that are required in order to follow up and communicate with potential clients, these tools allow our customers to focus on transacting their current business while efficiently marketing their services to potential clients, maintaining a pipeline of future business opportunities.

 

   

Anytime and anywhere access to critical information and tools . We offer mobile applications designed specifically for real estate professionals to take their business on the go. Using our mobile applications, real estate professionals can access critical information that they need to conduct their business, including listings details, contacts, driving directions, and local information about neighborhoods.

 

   

Significant return on investment . We believe that our subscription products deliver a high return on investment to real estate professionals.

Key benefits for advertisers

 

   

Attractive audience . We believe our audience is highly attractive to consumer brand advertisers. A substantial portion of our audience is either college educated, has a household income above $75,000, or is in the 25 to 54 age group. U.S. consumers with these characteristics tend to spend more of their annual income on home maintenance, insurance, household furnishings, apparel and services, and entertainment than the average consumer, according to the Bureau of Labor Statistics 2012 Consumer Expenditure Survey, which makes our audience attractive for consumer brand advertisers.

 

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Display advertising products that efficiently reach target consumers . We enable our advertisers to reach segments of our audience that are attractive to them. Advertisers benefit from improved reach, impact, relevancy, and measurement of their marketing campaigns in our marketplace.

Our Strengths

We believe that our competitive advantage reflects the following strengths:

 

   

Empower customers by delivering unparalleled insights and a superior user experience. We are one of the leading online real estate marketplaces and provide consumers with powerful tools and unique content that together deliver valuable insights into homes, neighborhoods, and real estate professionals. For example, our crime heat maps provide consumers with a view into neighborhood safety and our Facebook integration gives consumers recommendations on real estate professionals from people in their social network. We invest significant resources into technology development and product design to create a superior user interface that provides compelling features and rich functionality for our users.

 

   

Most Comprehensive Platform for Real Estate Professionals . We believe we have the most comprehensive, end-to-end platform for real estate professionals to grow and manage their businesses. We provide innovative lead generation products for real estate professionals to market themselves to consumers and generate new business. We also provide an integrated software platform with powerful analytics though which real estate professionals cultivate these leads and turn them into transactions. Moreover, we provide this comprehensive platform at scale, servicing five of the ten largest brokers and three of the largest real estate franchises in the United States.

 

   

Large, differentiated, transaction-ready audience . Our website and mobile applications have attracted 48.0 million monthly unique visitors in the year ended December 31, 2014 and, based on data from comScore, Inc., a marketing research company, a significant portion of our visitors do not visit our primary competitors’ websites. We believe that our audience is highly motivated and ready to purchase homes, as supported by our surveys conducted between January 2014 and December 2014 in which 75% of over 391,000 respondents contacting real estate professionals through our marketplace are planning to move in the next six months, and 38% of over 267,000 respondents stated that they are pre-approved for a mortgage.

 

   

Strong mobile monetization . We believe that we are one of the few companies that is monetizing its mobile products at a higher rate than web products. Since we launched our subscription product for mobile devices in May 2012, we have sold this product at prices that yield a higher average monthly revenue per subscriber than our subscription products that are not focused on mobile devices. In addition, our users are more likely to contact real estate professionals through our mobile applications than our website.

 

   

High ROI for real estate professionals . We believe our subscription products provide compelling value and a better return on investment than other marketing channels.

 

   

Powerful network effects driven by unique content . We benefit from a self-reinforcing network effect that helps build our brand, drives user engagement in our marketplace, and attracts more users to our website and mobile applications. Consumers post questions in our marketplace, attracting real estate professionals who add more content by answering these questions, which in turn attracts more consumers to our marketplace.

 

   

Big data and analytics platform . We employ proprietary advanced analytics and heuristics capabilities to aggregate, filter, and analyze large amounts of data from disparate sources that we have cultivated over the years. Our expertise in handling large amounts of externally-sourced data and combining it with user activity data collected from our marketplace allows us to improve the user experience by developing innovative new tools and new functionality.

 

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Our Strategy

Our goal is to build the leading online real estate marketplace. We intend to focus on the following key strategies in pursuit of our goal:

 

   

Expand our audience and increase user engagement . We intend to grow our large, transaction-ready audience by focusing our marketing efforts to consumers who are in the market and ready to move and by continuing to offer superior products for consumers. We launched a multi-channel marketing campaign in 2014 to drive increases in audience and user engagement. We plan to continuously enhance and refresh our database of homes, partner with third parties to add new and relevant local content, and encourage our users to contribute useful content. We also plan to develop new features and tools that deepen our users’ engagement with our website and mobile applications, and to promote and foster interaction in our vibrant user community.

 

   

Grow the number of real estate professionals in our marketplace . We intend to further penetrate the large base of more than 2.8 million real estate professionals in the United States by communicating the value proposition of our free and subscription products, growing our audience of transaction-ready consumers, and creating additional products.

 

   

Increase revenue . We plan to increase our revenue by selling more subscription and advertising products and by optimizing our pricing.

 

   

Increase brand awareness . We launched a multi-channel marketing campaign in 2014 to drive awareness of our brand, especially among consumers in the market ready to move. We also plan to continue to grow our brand by providing our users with superior and innovative products.

Data

Management of data is a critical component of our solution. We manage over one terabyte of data on a daily basis. For Trulia.com, our Trulia mobile applications and our Trulia partner network, the graphic below illustrates how we organize data as listings data, local information, and user-generated content:

 

LOGO

Listings data

We refresh and supplement the Trulia listings database of over 114.0 million properties and for sale and for rent listings with data we receive from thousands of feeds on a daily basis. We receive feeds covering millions of

 

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new and existing for sale and for rent listings every day from MLSs, real estate brokerages, real estate agents, real estate listings aggregators, and other third parties. We also obtain detailed ownership and property data from vendors who collect and digitize information from public county records .

We process this wealth of data through our proprietary algorithms and heuristic data validation engine to sort, augment, and select the most up-to-date and accurate data to display . As a next step, we apply our search logic to the data, and overlay additional local information on schools, crime, neighborhood amenities, home values, and other community information. The final product is a complete profile of a property or listing with property facts, price data, local information, and agent contact information, which we publish in our marketplace in an intuitive and engaging user experience.

In addition, for our Market Leader solutions, we process data feeds from approximately 500 multiple listing services to populate more than 177,000 real estate professional websites we host.

Local information

We inform consumers on what it is like to live in a neighborhood by delivering insights on schools, crime, neighborhood amenities, commute times, home values, historical earthquake, flood and other natural disaster data, and other community information.

 

   

Schools. We provide information on schools by district, type, parent reviews, and ratings, which is based on data that we receive from third parties . We overlay this information onto our maps and color code the data points with a sliding color scale to differentiate between schools with low, medium, or high ratings.

 

   

Crime. We receive raw data from third parties about the occurrence, type, location, and description of non-violent and violent crime . We conduct proprietary analysis on the data and aggregate our findings into a tabular format or into our proprietary crime heat map . Our crime heat map provides an overview, visualized through a sliding color scale of the incidence of crime in the area and highlights in callout text boxes the number of violent crimes in the area .

 

   

Enhanced map visualizations of natural disasters . We enable consumers to view historical earthquake and flood data, allowing them to assess the risk of these natural disasters on a block-by-block level. We also provide interactive natural hazard maps pinpointing areas across the United States that are prone to hurricanes, wildfires, and tornadoes. With these maps, users are able to visualize where their dream home is located relative to where natural hazards have hit. Our map visualizations are also fully integrated into our mobile offerings.

 

   

Neighborhood amenities . We provide the location, names, and ratings of nearby restaurants, grocery stores, banks, and gas stations on our maps based on data that we receive from Yelp.

 

   

Home values. Based on our analysis of the sales records and property information in our database, we have developed market- and local-level views of the trends in price, number of sales, and number of listings by property type and location, which we publish on our listings pages and on the Local Info section of our website in interactive chart formats and in our proprietary heat map format.

 

   

Other community information. We analyze data from the U.S. Census Bureau to provide users with information on how the median household and family income, age of homes, and commute times of a neighborhood compare to those of the city.

Additionally, we have an agreement with Google to use its basic maps, over which we integrate our proprietary insights.

 

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User-generated content

The user-generated data in our marketplace is organized under the Advice section of our website by type of content, questions and answers, blogs, real estate guides, and along topics relevant to our audience such as local information, tips on home buying and selling, and observed market trends . We also allow real estate professionals to publish their own profile and receive recommendations from their clients under the Find an Agent section of our website.

The content in our marketplace is generated by our vibrant community of users . Users can vote on the quality of content using our “thumbs up” or “thumbs down” icons and can follow the voting results . Additionally, users can “flag” inappropriate content on our site, which is escalated to our Trulia community team whose enforcement actions follow the terms and conditions for user-submitted content as published on our website.

Our Products for Consumers

Our products for consumers focus on helping them find the right home. Our consumer products are offered for free and provide a robust set of tools for evaluating where to live.

Searchable database

Search

We maintain one of the largest searchable databases of homes for sale and rent in the United States. Our database includes more than 114.0 million properties with 3.0 million listings of homes for sale and rent. We provide users with the ability to search our database along a variety of parameters as described below:

 

All Properties

  

Sale properties only

  

Rentals only

  

Sold properties only

City

Bedrooms

Bathrooms

Price range

Square footage

Property type Keyword search

  

Open houses

Year built
Lot size

Foreclosure type

MLS ID
Price per square foot

  

Pets

Amenities

   Time since sale date

Our users can customize their search along as few or many features as they prefer and by keyword search of specific property attributes. From our search results, users have access to the detailed data on each home in our database, photos of the home, and the for sale or for rent listing information.

Additionally, we enhance our users’ experience by giving them the choice to display their search results in listings or map formats. The map format provides the added functionality of polygonal search, which enables users to delineate the precise area of their searches. We offer products that further enhance our users’ experience with visually impactful maps, graphics, and photos of homes and neighborhood characteristics.

Trulia Estimates

Trulia Estimates is our estimate of an off-market property’s value based on our proprietary analysis of relevant home data such as recent sales of similar homes and property facts. This search function allows users to conduct a precise search by street address to find our estimate of the value of that home. Additionally, home owners may claim their home in our database and edit their home’s specific facts and details so that our proprietary system can revise its estimated value.

Rich insights and content

We provide users with rich insights and content that are critical to a successful home search and that cannot be discovered through home listings data alone. We deliver these insights through the following products:

 

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Local Info . We aggregate local data from a variety of sources and make it more useful to our consumers through Google Maps overlays using our proprietary data visualization tools. These types of local insights include crime heat maps, historical earthquake, flood and other natural disaster data maps, school boundary and performance statistics, local amenity location and reviews through our integration with Yelp, and commute information.

 

   

Advice . We provide our users with insights on homes, neighborhoods, and real estate professionals based on the advice generated by our active community of contributors. Users of our marketplace can post questions and receive answers in the Trulia Voices portion of our website and also scour the collection of advice columns and blogs that other users post. With over 16.6 million unique user contributions and over 1.4 million topics discussed on Trulia Voices , we believe we have amassed the largest online collection of user-generated content in the U.S. residential real estate market. This gives our users access to the insights of consumers, local enthusiasts, and real estate professionals who are knowledgeable about the neighborhoods in which our users are searching.

 

   

Find an Agent . We provide consumers with a directory that includes more than 2.8 million real estate professionals that is searchable by location, name, and type of professional. Our platform integrates with Facebook to leverage the power of social networks for clients to recommend real estate professionals and for real estate professionals to take advantage of online “word of mouth” referrals. For example, a consumer searching for a real estate agent in our marketplace can quickly find whether someone in their social network has recommended an agent in a particular area in which they are looking.

 

   

Value information . Each property detail page features information and analytics on the property value, including price comparisons of similar properties based on median home sale data by neighborhood, zip code and city, price history and trends, and property taxes based on assessed property values. We believe this information helps users better assess the value of the property beyond what can be gleaned from price data alone.

 

   

Mortgage . Given the significant cost of a home purchase, we provide our users with guides on how to finance their purchase, information on mortgage rate trends, and calculators to determine their estimated mortgage payment based on the rates and terms quoted.

Mobile

Our products are accessible anytime and anywhere online and on mobile devices. We provide the following differentiated Trulia mobile applications for consumers on several major mobile platforms and devices:

 

   

m.trulia.com : A mobile-optimized website accessible on mobile device browsers

 

   

Real Estate App : Our full-featured Trulia real estate mobile application, available on iPhone, iPad, Android Phone, Android Tablet and Kindle Fire.

 

   

Rental App : Our mobile application optimized for users looking to rent a home, which is available on iPhone, iPad, Android Phone, Android Tablet and Kindle Fire, and provides a mobile offering customized to the needs of our rapidly growing rentals audience.

 

   

Agents App : Our mobile application optimized for real estate professionals, available on iPhone and Android Phone.

 

   

Mortgage App : Our mobile application optimized for users looking for mortgage information, available on iPhone and iPad.

 

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Our Products for Real Estate Professionals

We sell three sets of products to real estate professionals on a subscription basis. The first set of products enables real estate professionals to promote themselves to potential buyers or sellers by targeting a local market area. Real estate professionals purchase subscriptions to these products for their desired city or zip code, at a fixed monthly price, for periods ranging from one month to one year, with pricing depending on demand, location, and the percentage of market share purchased or estimated number of leads. These products include:

 

   

Trulia Local Ads . Real estate professionals can purchase local advertising on Trulia’s website by zip code or city and by share of a given market. This functionality enables them to enhance their presence in their chosen market and generate more leads.

 

   

Trulia Mobile Ads. Real estate professionals can purchase local advertising on our mobile applications and mobile website by zip code and by share of a given market. This functionality enables them to feature their profile and contact information on search results and listings, thereby enhancing their visibility with transaction-ready consumers.

 

   

Trulia Seller Ads. Real estate professionals can purchase differently priced Trulia Seller Ads packages to generate leads from consumers interested in selling their homes. This functionality enables them to market directly to sellers through a free home value report that features the real estate professional and includes useful valuation information, such as price history and comparable homes sold.

Our second set of products allows real estate professionals to receive prominent placement of their listings in our search results. Real estate professionals sign up for new subscriptions to this product at a fixed monthly price for periods that generally range from 1 month to 24 months. This set of products includes:

 

   

Trulia Pro . Real estate agents can purchase one of three differently priced Trulia Pro packages to enhance their online presence, feature their listings in search results, and interact with potential clients more effectively. Benefits include enhanced lead generation, greater local lead rotation, featured listings, robust property pages, detailed contact information in search results, instant leads via mobile, and integrated recommendations with Facebook. We provide similar products to real estate brokers under the name Premium Listings .

Our third set of products is our comprehensive software-as-a-service that allows real estate professionals to manage and cultivate clients and potential clients by automating daily tasks and efficiently marketing their services. We charge real estate professionals subscription fees for our software-as-a-service products. We also generate revenue through enterprise marketing agreements with real estate franchise networks. We provide a base level software-as-a-service product to all agents and/or brokerages in these franchise networks in exchange for certain minimum payments from the real estate franchise networks. We also generate revenue through the sale of premium software and marketing products to individual agents, teams and brokerage offices within these real estate franchise networks.

With our software-as-a-service-based marketing products, we offer a bundle of services that may include some or all of the following:

 

   

Software-as-a-service, including customer relationship management (CRM) tools, personalized websites, marketing tools, and content designed to help real estate professionals build online relationships with prospective home buyers and sellers.

 

   

Marketplace products that utilize our advertising expertise and leverage our national real estate websites to produce leads in the local neighborhoods where real estate professionals do business.

 

   

Community and training services that enable real estate professionals to share and learn best practices to help them close more business with consumers.

 

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We also offer real estate professionals a set of free products that allows them to promote themselves and their listings online and to connect with consumers searching to buy or sell homes. Our free products include:

 

   

Property listings . We offer real estate professionals the ability to reach a large, transaction-ready audience and the potential to acquire leads by listing their properties in our marketplace for free.

 

   

Mobile application. We have developed an Agent App for the iPhone and Android Phone that enables real estate professionals to manage their businesses anytime and anywhere.

 

   

Agent profile. Agents can create their own profile in our marketplace by posting contact information, photos, and qualifications, and can manage their brand by linking their profile to their activity on our forums and to Facebook. Agent profiles are posted on the Find an Agent section of our website.

 

   

Communities. Through our Trulia Voices forum and our Active Rain network, we enable real estate professionals to promote their presence by allowing them to connect meaningfully with consumers, network with other professionals, follow topics of interest to their audience, receive updates on neighborhoods, and broadcast their thoughts on our blogging platform.

 

   

Recommendations. We have built social search functionality into our Find an Agent database of agent profiles where users can sort agent profiles by number of recommendations . Additionally, real estate professionals can publish their recommendations on their Facebook Wall through integration with Facebook Connect.

 

   

Check-ins. Our real estate professionals can “check-in” on the Trulia mobile agent application to establish their presence at a property.

 

   

Agent training and advice blogs. We publish two blogs, Trulia Pro and Trulia Corporate , written by real estate industry experts with whom we partner to provide tips, advice, and education for buyers, sellers, and renters.

 

   

Tools and widgets. We offer real estate professionals a number of tools and widgets that they can incorporate into their personal websites to display local real estate information such as a slideshow widget to play photos of properties or a widget to broadcast their contributions on Trulia Voices on their blog or website.

Our Products for Advertisers

We sell display media advertising on a cost-per-impression and cost-per-click basis to national advertisers seeking to reach the large and attractive audience for our online properties and those of our publisher partners. We display their advertisements on our home page and on individual web pages through graphical displays and text links, and help these customers optimize their advertisements’ effectiveness through our robust targeting capabilities. We also offer display media advertising on our mobile website that is optimized for mobile device web browsers.

Seasonality

From time to time, we experience seasonality in subscription revenue and display advertising due to fluctuations in traffic to our website and mobile applications. During the fourth quarter of each year, traffic to our marketplace has historically declined and our revenue has historically grown more slowly than in other quarters or has declined sequentially. Conversely, we typically experience higher growth in traffic and revenue during the spring and summer months, when consumers are more likely to buy new homes. We expect that seasonality will continue to affect traffic in our marketplace, as well as our revenue from subscriptions and advertising.

We rely on advertising to attract consumers to our Market Leader websites and to generate traffic and leads on these websites. As a result, we are subject to seasonal fluctuations in advertising rates and marketing services. Changing consumer behavior at various times throughout the year affects our advertising expenses. We expect

 

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that seasonal fluctuations in advertising costs will affect our operating expenses, as well as our operating margins.

Technology and Engineering

Product development and innovation are core pillars of our engineering culture that aims to delight our users and customers with our products. We provide our web and mobile products using a combination of in-house and third-party technology and products.

Big data and proprietary algorithms. We have developed our technology platform to handle data at large scale. On a daily basis, we process several million home listings from thousands of data feeds through our proprietary algorithms and heuristic data validation engine to sort, augment, and select the most up-to-date and accurate data to display.

Infrastructure. We currently manage our www.trulia.com website and mobile applications from four locations. The primary location where we host our production environment, is within a shared data center in Santa Clara, California. We also placed into service a second hosted facility, located in Denver, Colorado in 2013, where we support our production environment and provide redundancy, backup, and load balancing. We use a third hosted facility, located in Oakland, California, for production service backup and for our development environment. Our website and mobile applications are designed to have high availability, from the Internet connectivity providers we choose, to the servers, databases, and networking hardware that we deploy. Our Market Leader operations are hosted in Bellevue, Washington, at co-location facilities in Kent, Washington and at other locations operated by third parties. We design our systems such that the failure of any individual component is not expected to affect the overall availability of our platform. We also leverage content delivery networks and use other third-party cloud computing services, including map-related and ad serving services, to ensure fast and local access to content. We employ a host of encryption, antivirus, firewall, monitoring, and patch-management technology to protect and maintain our systems.

Innovation. In addition to our new product development efforts, we encourage technological advances by directing a portion of our engineering team’s time towards organized innovation days. Each quarter, our product managers and engineers share ideas and experiments and recruit their peers to join their projects to bring a new concept to life. As progress is shared with the larger group, these new ideas receive additional input and product planning and are frequently the basis of new products and features we offer.

Agile methodology and quality focus. Our software development methodology is agile and promotes teamwork, collaboration, and process adaptability throughout the life cycle of a development project. We believe this methodology yields robust, high quality, efficient, and nimble software development. We also invest heavily in the quality of our technology with robust testing at each stage in our development process.

In June 2012, we entered into a Platform Services Agreement (the “ListHub Agreement”) with Move Sales, Inc., (“ListHub”), which provides us with a substantial portion of the unique listings in our marketplace. This agreement supersedes our prior agreement with ListHub for the provision by ListHub of listings to us. Under the terms of this agreement, ListHub grants to us a nonexclusive license to display listings on our platform and use these listings for the purpose of providing real estate professionals with information relating to lead generation management and advertising products. This agreement contains a 48-month term and renews automatically for additional one year terms unless canceled upon the provision of 90 days prior notice by either party. This agreement is not cancelable by ListHub except in the case of material uncured breach by us, assignment of the contract by us under certain circumstances and to certain other third parties, or our filing for bankruptcy, insolvency or assignment for the benefit of creditors, or if a receiver is appointed on our behalf. On February 19, 2015, we received a notice from ListHub, that pursuant to the ListHub Agreement, that ListHub is terminating the ListHub Agreement effective February 25, 2015, as a result of Zillow’s acquisition of us. On February 20, 2015, we filed a complaint and an application for a temporary restraining order in the Superior Court of the State

 

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of California, County of San Francisco against ListHub. The complaint and the application allege, among other things, breach of contract by ListHub in seeking to terminate the ListHub Agreement and seek injunctive relief to prevent termination of the Agreement and termination of the listings feeds ListHub provides to Trulia. On February, 23, 2015, the Superior Court granted our application for a temporary restraining order and set March 12, 2015 as the date for a hearing on a preliminary injunction on the matter.

We maintain our primary technology infrastructure at a facility in Santa Clara, California maintained by Equinix Operating Company, Inc., or Equinix. Equinix provides data center space to us under the terms of a master service agreement. This agreement terminates on the earlier of the date that it is terminated by either party or the last order made under the agreement terminates or expires. This agreement is not cancelable by Equinix except in the case of material uncured breach by us, the suspension by Equinix three or more times during any twelve month period of its services pursuant to the terms of this agreement, our liquidation, cessation to do business or insolvency, or the condemnation of the physical space subject to this agreement.

Marketing

Our principal marketing strategy has been to develop a superior user experience that will drive audience growth and brand recognition. We have not historically spent significantly on marketing programs, but have focused on organic and viral growth driven by our user base. We currently expect that our marketing and product development expenses are likely to increase as we seek to attract additional consumers and real estate professionals to our marketplace. For example, we launched a multi-channel, national marketing campaign in 2014 to drive awareness of our brand, especially among consumers in the market ready to move. As our consumer audience has grown, real estate professionals have followed consumers to Trulia. We have also grown our brand among real estate professionals and the real estate industry through tradeshow participation, social engagement, and ongoing education via webinars, newsletters, and word of mouth.

Our marketing strategy includes the use of paid channels such as SEM, organic channels such as SEO as well as engagement channels such as email. These channels are used to drive consumer visits and engagement across all platforms. In addition we build connections with consumers via social channels such as Facebook and Twitter. Our brand efforts include consumer blogs and media outreach efforts that engage consumers directly with topical content. This type of content is used by, and our Chief Economist is quoted regularly in, major news outlets, including The Wall Street Journal, Bloomberg, The New York Times, Time Magazine, and U.S. News & World Report.

 

   

Advice for real estate professionals. Our blogs for real estate professionals, Trulia Pro and Trulia Corporate , written by well-known real estate industry experts with whom we partner, elevate Trulia’s brand awareness amongst the community of real estate professionals.

 

   

Celebrity and luxury homes. Luxe Living is our blog dedicated to the latest developments on celebrity and luxury homes . This blog and its content have been featured on ExtraTV, E! News, US Weekly, The Los Angeles Times, and more.

We expect that our efforts to maintain or increase consumer traffic and subscribers are likely to include, among other things, increases to our marketing spending and expenditures to increase the number of our engineering and product development personnel.

Customers

Real estate professionals that pay for our subscription products include:

 

   

Agents, who collaborate with consumers, seek leads, and manage transactions;

 

   

Brokers, which recruit, train, and provide core real estate services to agents; and

 

   

National real estate franchisors, which provide real estate services to franchisees to enable the growth of their brand.

 

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The majority of our real estate professional subscribers are agents. As of December 31, 2014, we had more than 540,000 active real estate professionals in our Trulia marketplace and 181,000 active real estate professionals using our Market Leader software and services. Approximately 79,300 of these real estate professionals were paying subscribers (assuming a 20% overlap between Trulia subscribers and Market Leader’s premium subscribers). A key focus of our sales and marketing activities has been to further penetrate the large base of more than 2.8 million real estate professionals in the United States. If we are unable to increase the number of total subscribers in our marketplace, our revenue may not grow and our operating results could suffer.

Our advertising solutions are purchased by a diverse cross-section of brand advertisers that operate within the real estate ecosystem, and those that seek to reach our highly educated and affluent audience. In each of the years ended December 31, 2014, 2013, and 2012, the ten largest advertising partners for the respective period accounted for more than 61%, 65%, and 63%, respectively, of our media revenue.

No customer represented 10% or more of total revenue during the years ended December 31, 2014, 2013, and 2012. No customer represented 10% or more of our gross accounts receivable as of the year ended December 31, 2014, and one customer accounted for 13.0% of the gross accounts receivable as of December 31, 2013.

Sales and Customer Support

We have dedicated sales teams that support our marketplace business and our display advertising business.

For our marketplace business, the majority of our sales are made by our inside sales team that sells our subscription products to real estate professionals. Our inside sales teams are located in our Bellevue, Denver, and San Francisco offices and attract new subscribers through a combination of outbound calling and inbound customer requests generated from our website and marketing activities. We also have a field sales team that sells our marketplace products at larger deal sizes to real estate brokers, franchisors, and builders.

For our display advertising business, we maintain a field sales team based in New York, to specifically target large advertising customers in the real estate and related content categories, such as insurance companies, mortgage providers, and home improvement companies, as well as other brand advertisers that seek to reach our audience. Our field sales team develops direct relationships with these advertisers and the agencies that serve them.

We place a high value on providing quality support to our users, marketplace subscribers, and advertisers. Our customer support team, based in Bellevue, Denver, and San Francisco, responds to commercial and technical questions from our users and advertisers.

Competition

The markets in which we operate are highly competitive and fragmented. Consumers research homes through a variety of sources. Similarly, real estate professionals use a variety of marketing channels to promote themselves and find clients. Consequently, we face competition from a variety of direct and indirect channels, and we believe we compete favorably.

Competition for consumers

We compete to attract consumers to our websites and mobile applications primarily on the basis of the breadth and quality of listings; user experience; the breadth, depth, and relevance of the insights on homes, neighborhoods, and real estate professionals; brand and reputation; and the quality of mobile products.

Our principal competitors for consumers include:

 

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Print media, including local newspapers, magazines, and home/apartment guide publications;

 

   

Online real estate marketplaces such as Homes.com, MSN Real Estate, Realtor.com, and Yahoo! Real Estate;

 

   

Online brokerage service providers such as Redfin and ZipRealty;

 

   

MLSs across the United States;

 

   

Full-service real estate brokerage service providers such as Century 21 and Coldwell Banker;

 

   

Online rental listing providers such as ApartmentGuide.com, ApartmentList.com and Rent.com;

 

   

General online classifieds such as Craigslist;

 

   

Search engines such as Bing, Google, and Yahoo!; and

 

   

Websites of real estate brokerages and individual agents.

Competition for real estate professionals

We compete for a share of real estate professionals’ overall marketing spend with traditional, offline media, and other online marketing channels. We compete primarily on the basis of the size and attractiveness of the consumer audience; quality and measurability of leads; perceived return on investment; effectiveness of marketing and workflow tools; and quality of mobile products.

Our principal competitors for real estate professionals include:

 

   

Print media, including local newspapers, magazines, and home/apartment guide publications;

 

   

Other traditional media, including television and radio;

 

   

Other online real estate marketplaces;

 

   

Social networking services such as Facebook and Twitter;

 

   

Search engines such as Bing, Google, and Yahoo!;

 

   

Websites offering display advertising;

 

   

Email marketing software and tools; and

 

   

Providers of customer relationship management (CRM) software for real estate professionals.

Competition for advertisers

We face competition to attract advertisers to market their products on our website. The basis of competition includes size, demographics, and overall attractiveness of an audience; pricing; and the ability to target desired audience segments.

Intellectual Property

We protect our intellectual property through a combination of trademarks, domain names, copyrights, trade secrets, and patents, as well as contractual provisions and restrictions on access to our proprietary technology.

We registered “Trulia” and the Trulia marker logo as trademarks in the United States and several other jurisdictions. We hold twenty-three trademarks registered in the United States and thirty-nine trademarks registered in other jurisdictions associated with our Trulia and Market Leader business. We also have filed other trademark applications in the United States and certain other jurisdictions, and will pursue additional trademark registrations to the extent we believe it would be beneficial and cost effective.

We have five patents registered and 12 patent applications pending in the United States and internationally, which seek to cover proprietary techniques relevant to our products. We intend to pursue additional patent protection to the extent we believe it would be beneficial and cost effective.

 

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We currently hold the “Trulia.com,” “Marketleader.com,” “Housevalues.com” and “RealEstate.com” Internet domain names and various other related domain names.

In addition to the protection provided by our intellectual property rights, we enter into confidentiality and proprietary rights agreements with our employees, consultants, contractors, and business partners. Our employees and contractors are also subject to invention assignment agreements. We further control the use of our proprietary technology and intellectual property through provisions in both our general and product-specific terms of use on our website.

Litigation or proceedings before the U.S. Patent and Trademark Office or other governmental authorities and administrative bodies in the United States and abroad may be necessary in the future to enforce our intellectual property rights, to protect our patent rights, trade secrets, and domain names and to determine the validity and scope of the proprietary rights of others. Our efforts to enforce or protect our proprietary rights may be ineffective and could result in substantial costs and diversion of resources, which could harm our business and operating results.

Employees

As of December 31, 2014, we had 1,055 employees, with 241 in technology, 732 in sales, marketing, and customer support, and 82 in general and administrative functions. We had 409 full-time employees in our San Francisco headquarters, 312 in our Denver location, 31 in our New York office, 279 in our Bellevue office and 24 of our employees work remotely. None of our employees is represented by a labor union with respect to his or her employment with us.

Additional Information

Trulia, Inc. was incorporated in Delaware in June 2005. Our principal executive offices are located at 535 Mission Street, Suite 700, San Francisco, California 94105, and our telephone number is (415) 648-4358. Our website address is www.trulia.com . In addition, we maintain a Facebook page at www.facebook.com/trulia and a Twitter feed at www.twitter.com/trulia . Information contained on, or that can be accessed through, our or Zillow Group’s website, Facebook page or Twitter feed does not constitute part of this Annual Report on Form 10-K.

Copies of annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are available, free of charge, on the Zillow Group website at investors.zillowgroup.com as soon as reasonably practicable after we file such material electronically with or furnish it to the Securities and Exchange Commission (“SEC”). The SEC also maintains a website that contains our SEC filings. The address of the site is www.sec.gov .

 

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Item 1A. Risk Factors

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, before making a decision to invest in our common stock. If any of the risks actually occur, our business, financial condition, operating results, and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment.

We may not realize the expected benefits of the Zillow Merger quickly or at all.

On July 28, 2014, we entered into the Merger Agreement with Zillow and HoldCo, pursuant to which Zillow acquired us on February 17, 2015. Pursuant to the Merger Agreement, both we and Zillow have become wholly-owned subsidiaries of HoldCo. The success of the Zillow Merger will depend , in part, on our ability to realize the anticipated business opportunities and growth prospects from combining our businesses with those of Zillow. We may never realize these business opportunities and growth prospects. Integrating operations will be complex and will require significant efforts and expenditures. Our management might have its attention diverted while trying to integrate operations and corporate and administrative infrastructures. We might experience increased competition that limits our ability to expand our business, and we might fail to capitalize on expected business opportunities, including retaining current customers.

We are in the early stages of integrating our business and operations with Zillow’s business and operations. The integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with clients, employees or other third parties or our ability to achieve the anticipated benefits of the Zillow Merger and could harm our financial performance.

If we are unable to successfully or timely integrate our operations and business with Zillow’s business, we may be unable to realize revenue growth, synergies and other anticipated benefits resulting from the Zillow Merger and our business and results of operations could be adversely affected.

We have a limited operating history in an evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

We have a limited operating history in an evolving industry that may not develop as expected. Assessing our business and future prospects is challenging in light of the risks and difficulties we may encounter. These risks and difficulties include our ability to:

 

   

increase the number of consumers using our websites and mobile applications;

 

   

continue to obtain home listing information, as well as information on schools, crime, commute times, neighborhood amenities, rental prices and historical earthquake and flood data;

 

   

increase the number of real estate professionals subscribing to our products;

 

   

increase the revenue from real estate professionals subscribing to our products;

 

   

increase the revenue from advertisers on our websites;

 

   

successfully develop and deploy new features and products;

 

   

encourage and foster the growth of user-generated content;

 

   

increase our brand awareness among consumers and real estate professionals;

 

   

successfully compete with other companies that are currently in, or may in the future enter, the business of providing residential real estate information online and on mobile applications, as well as with companies that provide this information offline;

 

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successfully compete with existing and future providers of other forms of offline, online, and mobile advertising;

 

   

successfully compete with existing and future providers of customer relationship management (CRM) tools and other solutions that help real estate professionals manage and grow their businesses;

 

   

successfully navigate fluctuations in the real estate market;

 

   

effectively manage the growth of our business;

 

   

successfully expand our business into adjacent markets, such as rentals, mortgages, and home improvement;

 

   

successfully integrate Market Leader; and

 

   

successfully expand internationally.

If the demand for residential real estate information online does not develop as we expect, or if we fail to address the needs of consumers, real estate professionals, or advertisers, our business will be harmed. We may not be able to successfully address these risks and difficulties, which could harm our business and cause our operating results to suffer.

We have a history of losses and we may not achieve or maintain profitability in the future.

We have not been profitable on a quarterly or annual basis since we were founded, and as of December 31, 2014, we had an accumulated deficit of $140.6 million. We expect to make future investments in the development and expansion of our business which may not result in increased revenue or growth. In addition, as a public company, we incurred significant legal, accounting, and other expenses that we did not incur as a private company. As a result of these increased expenditures, we must generate and sustain increased revenue to achieve and maintain future profitability. While our revenue has grown in recent periods, this growth may not be sustainable and we may not achieve sufficient revenue to achieve or maintain profitability. We may incur significant losses in the future for a number of reasons, including slowing demand for our products, a decrease in the growth rate of our monthly unique visitors, increasing competition, weakness in the residential real estate market, our inability to effectively integrate acquired businesses, such as Market Leader, as well as other risks described in this Annual Report on Form 10-K, and we may encounter unforeseen expenses, difficulties, complications and delays, and other unknown factors. Accordingly, we may not be able to achieve or maintain profitability and we may continue to incur significant losses in the future.

If real estate professionals do not continue to subscribe to our products, or we are unable to attract new subscribers, our business and operating results would be harmed.

We rely primarily on subscriptions purchased by real estate professionals to generate a substantial portion of our marketplace revenue. Marketplace revenue accounted for 83%, 79%, and 70% of our revenue in the years ended December 31 2014, 2013 and 2012, respectively. We generally offer subscriptions for periods between six months to 12 months, with most real estate professionals preferring to subscribe for periods shorter than 12 months. Our ability to attract and retain real estate professionals as subscribers, and to generate subscription revenue, depends on a number of factors, including:

 

   

our ability to attract transaction-ready consumers to our websites and mobile applications;

 

   

the number of unique visitors using our websites and mobile applications;

 

   

the quality of the leads that we provide to our subscribers;

 

   

the number of leads that we provide to our subscribers;

 

   

the rate of adoption of our software-as-a-service based products;

 

   

the success of our marketing relationships with leading national real estate franchise networks;

 

   

the success of our efforts to upsell customers from promotional offers to higher revenue services;

 

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the success of any increased marketing and product development efforts directed at attracting additional consumers and real estate professionals to our marketplace;

 

   

the strength of the real estate market;

 

   

the competition for real estate professionals’ marketing dollars; and

 

   

the strength of our brand.

A key focus of our sales and marketing activities has been to further penetrate the large base of more than 2.8 million real estate professionals in the United States. As of December 31, 2014, we had more than 540,000 active real estate professionals in our Trulia marketplace and 181,000 active real estate professionals using our software and services. Approximately 79,300 of these real estate professionals were paying subscribers (assuming a 20% overlap between Trulia subscribers and Market Leader’s premium subscribers). We spend a considerable portion of our operating expenses on sales and marketing activities. Our sales and marketing expenses were our largest operating expenses in the years ended December 31, 2014 and 2013. Sales and marketing expenses reflect many of the costs that we incur in acquiring new subscribers and retaining existing subscribers, and we expect that sales and marketing expenses will continue to increase in absolute dollars as we seek to grow the number of subscribers in our marketplace. If we are unable to increase the number of total subscribers in our marketplace, our revenue may not grow and our operating results could suffer.

Real estate professionals may not continue to subscribe with us if we do not deliver a strong return on their investment in subscriptions, and we may not be able to replace them with new subscribers. In addition, real estate professionals associated with our real estate franchise network partners may choose not to use our premium services if they are unable to convert leads we provide into closed sales, resulting in a loss of incremental revenue associated with our premium services. In addition, real estate professionals sometimes do not renew their subscriptions with us because of dissatisfaction with our products. This may occur for a number of reasons, including because we have made changes to our products or services, which we do periodically. If subscribers do not renew their subscriptions with us with the same or higher subscription fees, or at all, or if we are unable to attract new subscribers, our business and operating results would be harmed.

Further, although a majority of our revenue in the years ended December 31, 2014 and 2013 was generated from subscriptions purchased by real estate professionals, we cannot be certain that subscribers will renew their subscriptions with us and that we will be able to achieve the same or higher amounts of subscription revenue in the future.

Our ability to increase the number of subscribers to our services also depends, to some degree, on whether we can increase the inventory of marketing products and services available for us to sell in different geographic markets. If we are unable to create additional inventory by offering new services or reconfiguring our existing services, we may not be able to grow the number of subscribers to our services quickly or at all. Even if we are able to offer new services or reconfigure our existing services, there can be no assurance that new subscribers will purchase them or existing subscribers will be satisfied with the changes we make. For instance, in March 2013 we initiated an inventory expansion program offering additional advertising slots on our real estate listing detail pages to feature more than one subscriber. While this allowed us to sell additional subscriptions in a given location, some existing subscribers were dissatisfied with the change and elected not to renew their subscriptions.

In addition, if we need to reduce our subscription fees due to competition, our business, operating results, financial condition, and prospects would suffer if we are unable to offset any reductions in our fees by increasing our number of consumers and advertisers, reducing our costs, or successfully developing and deploying new features on a timely basis.

If we are not able to optimize our pricing and increase our average revenue per subscriber, we may not be able to grow our revenue over time.

Our ability to grow revenue depends, in part, on our ability to optimize pricing and increase average monthly revenue per subscriber over time. Since launching our first subscription product in 2007, we have

 

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continued to expand our products and optimize pricing of our products. As we continue to optimize our pricing, real estate professionals may not accept these new prices, which may harm our business and growth prospects. In August 2013, we acquired Market Leader, which offers subscription-based real estate marketing software and lead generation products. Market Leader historically generated lower average revenue per subscriber than us. As a result, we may experience difficulty in increasing our average revenue per subscriber, which may impact our ability to grow revenue over time and may harm our business and growth prospects.

If advertisers reduce or end their advertising spending with us, or if we are unable to attract new advertisers, our business and operating results would be harmed.

Display advertising accounted for 17%, 21%, and 30% of our revenue in the years ended December 31, 2014, 2013 and 2012, respectively. Our advertisers can generally terminate their contracts with us at any time or on very short notice. Our ability to attract and retain advertisers, and to generate advertising revenue, depends on a number of factors, including:

 

   

the number of consumers using our websites and mobile applications;

 

   

our ability to continue to attract an audience that advertisers find attractive;

 

   

the strength of our brand:

 

   

our ability to compete effectively for advertising spending with other real estate marketplaces, offline companies, and online companies;

 

   

how advertisers value our advertising network, which consists of our online properties and those of our publishing partners;

 

   

the amount of spending on online advertising generally;

 

   

our ability to deliver an attractive return on investment to advertisers; and

 

   

a shift by advertisers from direct to programmatic ad buying.

In addition, expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and budgeting and buying patterns. Adverse macroeconomic conditions can also have a material impact on demand for advertising and cause our advertisers to reduce the amounts they spend on advertising, which could adversely affect our revenues and our business.

We may not succeed in capturing more spending from advertisers if we are unable to demonstrate to advertisers the effectiveness of advertising in our marketplace as compared to alternatives, including traditional offline advertising media such as newspapers and magazines.

If advertisers reduce or terminate their advertising spending with us and we are unable to attract new advertisers, our revenue, business, operating results, and financial condition would be harmed. In our display advertising business, we also have a limited ability to replace the loss of revenue resulting from the loss of a customer during a particular quarter because of the significant time required to secure an alternative advertiser for such advertising inventory, run the alternative advertising campaign on our marketplace, and satisfy our revenue recognition criteria from such campaign. As a result, the loss of a customer during a quarter could result in our inability to replace the lost revenue from such customer within that quarter and, therefore, we will sometimes encounter variances in our Media revenue.

If we are unable to maintain or increase consumer traffic to our marketplace, our business and operating results would be harmed.

Our ability to generate revenue from our marketplace business and media business depends, in part, on our ability to attract consumers to our websites and mobile applications. If we fail to maintain or increase consumer traffic to our marketplace, our ability to acquire additional subscribers, deliver leads to existing subscribers, and

 

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sell advertising to third parties could be negatively affected. While we believe the number of consumers visiting our marketplace will continue to grow, our growth rate of monthly unique visitors has decreased on a year-over-year basis from 68% in year ended December 31, 2013 to 27% in the year ended December 31, 2014. We expect that our efforts to maintain or increase consumer traffic are likely to include, among other things, increases to our marketing expenditures and expenditures to increase the number of our engineering and product development personnel. There can be no assurance that any increases in our expenses will be successful in generating additional consumer traffic. Even if we are able to attract additional consumers to our marketplace, an increase in our operating expenses could negatively impact our operating results if we are unable to generate more revenue through increased sales of subscriptions to our marketplace products and display advertising. Accordingly, if we are unable to increase consumer traffic to our marketplace, or if we are unable to generate enough additional revenue to offset any increase in expenses related to increasing consumer traffic to our marketplace, our business and operating results would be harmed.

Our recent revenue growth rates may not be indicative of our future growth, and we may not continue to grow at our recent pace, or at all.

From the year ended 2008 to the year ended December 31, 2014, our revenue grew from $8.1 million to $251.9 million, which represents a compounded annual growth rate of approximately 77%. In the future, our revenue may not grow as rapidly as it has over the past several years. We believe that our future revenue growth will depend, among other factors, on our ability to:

 

   

acquire additional subscribers and sell additional products to existing subscribers;

 

   

sell advertising to third parties;

 

   

attract a growing number of users to our websites and mobile applications;

 

   

increase our brand awareness;

 

   

successfully develop and deploy new products for the residential real estate industry;

 

   

maximize our sales personnel’s productivity;

 

   

respond effectively to competitive threats;

 

   

successfully expand our business into adjacent markets, such as rentals and mortgages;

 

   

successfully integrate Market Leader; and

 

   

successfully expand internationally.

We may not be successful in our efforts to do any of the foregoing, and any failure to be successful in these matters could materially and adversely affect our revenue growth.

You should not consider our past revenue growth to be indicative of our future growth.

If we cannot obtain comprehensive and accurate real estate listing information on a timely basis or at all, our business will suffer.

Our offerings are based on receiving current and accurate real estate listing data. We depend on, and expect to continue to depend on, relationships with various third parties to provide this data to us, including real estate listing aggregators, multiple listing services, real estate brokerages, apartment management companies, and other third parties. Many of our agreements with our listing sources are short-term agreements that may be terminated with limited or no notice. If our relationship with one or more of these parties is disrupted, the quality of the experience we provide to users would suffer.

We currently depend on a listing aggregator to provide us with a substantial portion of the unique listings in our database. While these listings are available from their original sources, it would take substantial time and

 

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effort for us to aggregate these listings from all of the original sources. On February 19, 2015, we received a notice from our largest listing aggregator of their intent to terminate our agreement, as a result of Zillow’s acquisition of us. On February 20, 2015, we filed a complaint and an application for a temporary restraining order in the Superior Court of the State of California, County of San Francisco, against the listing aggregator. The complaint and the application allege, among other things, breach of contract by the listing aggregator in seeking to terminate the agreement and seek injunctive relief to prevent termination of the agreement and termination of the listings feeds the listing aggregator provides to us. On February, 23, 2015, the Superior Court of the State of California, County of San Francisco granted our application for a temporary restraining order and set March 12, 2015 as the date for a hearing on a preliminary injunction on the matter. Therefore, if this agreement with our largest listing aggregator is terminated, we may not be able to fully replace the listings in a timely manner or on terms favorable to us, or at all, which would adversely affect our business and operating results. In addition, as real estate brokers and multiple listing services typically control the distribution and use of listings, our business could suffer if real estate brokers or multiple listing services withheld listings from us or delayed the delivery of their listings to us. From time to time in the past, real estate brokers have refused to syndicate listings to us and multiple listing services have delayed the delivery of listings to us, and we cannot assure you this will not happen in the future. If real estate brokers or multiple listing services refuse to syndicate listings or delay such syndication to us, the quality of our products would suffer due to the decline of timely and accurate information, which could adversely affect our business and operating results.

We rely on information from real estate multiple listing services provided by third parties that we do not control.

The websites we provide to our software-as-a-service based customers combine aerial maps and for sale home listings, including listings in most of the major metropolitan markets in the United States. In addition, in selected markets, including most of the major metropolitan markets in the United States, we provide customers with functionality that allows them to automatically email their prospective clients information about newly available homes that meet the prospective clients’ criteria. The for sale home listings information provided by our websites and the automated email functionality are supplied only in markets in which we, our broker customers, or the broker affiliated with our agent customers have a relationship with the local multiple listing service (MLS). Our agreements with MLSs to display property listings have short terms, or can be terminated by the MLSs, or, in some cases, the broker, with little notice. The success of our products depends in part on our continued ability to provide customers with MLS listings and data, as well as our ability to expand listings in markets in which it is not currently available. Our inability to obtain MLS listings and data will harm our business and operating results.

If use of our mobile products does not continue to grow or we are not able to successfully monetize them as we expect, our operating results could be harmed and our growth could be negatively affected.

Our future success depends in part on the continued growth in the use of our mobile products by our users and our ability to monetize them. During the year ended December 31, 2014, our mobile products accounted for 49% of our total traffic, which has grown significantly since we launched our first subscription product for mobile devices in May 2012. We currently monetize our mobile offerings through our Trulia Mobile Ads subscription product for real estate professionals and through our mobile websites, including our Trulia mobile website and more than 177,000 agent websites powered by Market Leader. We monetize our mobile applications principally through our Trulia Mobile Ads subscription product through which real estate professionals can purchase local advertising on our mobile applications and our Trulia mobile website by zip code and by share of a given market. We monetize our Trulia mobile website and Trulia mobile applications through the sale of display advertisements and we also provide our Trulia subscribers rotational placement in a local lead form that appears on certain pages of our Trulia mobile website and mobile applications. The use of mobile technology may not continue to grow at historical rates, and consumers may not continue to use mobile technology for real estate research. Further, mobile technology may not be accepted as a viable long-term platform for a number of reasons, including actual or perceived lack of security of information and possible disruptions of service or connectivity. In addition, traffic on our mobile applications may not continue to grow if we do not continue to

 

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innovate and introduce enhanced products on mobile platforms, or if users believe that our competitors offer superior mobile products. The growth of traffic on our mobile products may also slow or decline if our mobile applications are no longer compatible with operating systems such as iOS or Android, or the devices they support. Additionally, real estate professionals and advertisers may choose to devote less of their spending to target mobile users for a number of reasons, including a perceived lack of effectiveness of display advertising on mobile devices. Although we have seen strong results in our mobile product monetization efforts with the launch of Trulia Mobile Ads in May 2012 and our product redesign in March 2013, we cannot assure you that we will continue to monetize our mobile products as effectively in the future. If use of our mobile products does not continue to grow, or if real estate professionals or advertisers decrease their spending on our mobile products, our business and operating results could be harmed.

If we do not continue to innovate and provide useful products, we may not remain competitive, and our business and financial performance could suffer.

Our success depends in part on our ability to continue to innovate. This is particularly true with respect to mobile applications, which are increasingly being used by our audience. Our competitors regularly enhance their offerings and create new offerings for consumers, real estate professionals, and others involved in the residential real estate industry. If we are unable to continue to offer innovative products or to keep pace with our competitors’ offerings, our business and operating results will suffer.

We rely on Internet search engines to drive traffic to our websites, and if we fail to appear high up in the search results, our traffic would decline and our business would be adversely affected.

We depend in part on Internet search engines, such as Google, Bing, and Yahoo!, to drive traffic to our websites. For example, when a user types a property address into a search engine, we rely on a high organic search ranking of our webpages in these search results to refer the user to our websites. However, our ability to maintain high organic search result rankings is not within our control. Our competitors’ search engine optimization, or SEO, efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search engines could revise their methodologies in a way that would adversely affect our search result rankings. If Internet search engines modify their search algorithms in ways that are detrimental to us, or if our competitors’ SEO efforts are more successful than ours, overall growth in our user base could slow. Search engine providers could provide listings and other real estate information directly in search results or choose to align with our competitors. Our websites have experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of users directed to our websites through search engines could harm our business and operating results.

We rely on assumptions and estimates to calculate certain of our key metrics, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

Our key metrics of monthly unique visitors and mobile monthly unique visitors are calculated using internal company data that has not been independently verified. While these numbers are based on what we believe to be reasonable calculations for the applicable period of measurement, there are inherent challenges in measuring such information. For example, our metrics may be affected by applications that automatically contact our servers to access our online properties with no user action involved, and this activity can cause our system to count the user associated with such a device as a unique visitor on the day such contact occurs. The calculations of monthly unique visitors and mobile monthly unique visitors presented in this report may be affected by this activity.

We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. Our measures of monthly unique visitors and mobile monthly unique visitors may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology. If real estate professionals, advertisers or investors do not perceive our user metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuracies in our user metrics, our reputation

 

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may be harmed and real estate professionals and advertisers may be less willing to allocate their budgets or resources to our products and services, which could negatively affect our business and operating results.

Our revenue and operating results could vary significantly from period to period.

We generate revenue through sales of subscriptions to real estate professionals and sales of display advertising to advertisers. Our subscription and advertising sales can be difficult to predict and may result in fluctuations in our revenue from period to period. Our revenue and operating results have fluctuated in the past, and may continue to fluctuate in the future, as a result of a variety of factors, many of which are outside of our control. As a result, comparing our revenue and operating results on a period-to-period basis may not be meaningful, and you should not rely on past results as an indication of future performance.

Our revenue, operating results, or both, may be affected by a number of factors, including:

 

   

our subscription and advertising sales, particularly large advertising campaigns;

 

   

fluctuations in user activity on our websites and mobile applications, including as a result of seasonal variations;

 

   

competition and the impact of offerings and pricing policies of our competitors;

 

   

competing effectively for advertising dollars with other online media companies;

 

   

offering an attractive return on investment to our advertisers for their advertising spending with us;

 

   

the effects of changes in search engine placement and prominence of our websites;

 

   

the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure;

 

   

our ability to control costs, particularly those of third-party data providers;

 

   

our ability to reduce costs in a given period to compensate for unexpected shortfalls in revenue;

 

   

the timing of costs related to the development or acquisition of technologies or businesses;

 

   

our inability to complete or integrate efficiently any acquisitions that we have undertaken;

 

   

our ability to collect amounts owed to us from advertisers;

 

   

changes in our tax rates or exposure to additional tax liabilities;

 

   

claims of intellectual property infringement against us and any resulting temporary or permanent injunction prohibiting us from selling our products or requirements to pay damages or expenses associated with any of those claims;

 

   

our ability to successfully expand in existing markets and enter new markets;

 

   

our ability to keep pace with changes in technology;

 

   

changes in government regulation affecting our business;

 

   

the effectiveness of our internal controls;

 

   

conditions in the real estate market; and

 

   

general economic conditions.

For example, individuals hired to join our sales team typically do not reach their maximum productivity until they have been employed for several months or more. Our fixed expenses related to the addition of personnel may not result in an increase in revenue in a given period or at all.

As a result of the foregoing factors and others discussed in this “Risk Factors” section, our operating results in one or more future periods may fail to meet or exceed our projections or the expectations of securities analysts or investors.

 

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Seasonality may cause fluctuations in our traffic, revenue, operating expenses and operating results.

From time to time, we experience seasonality in subscription revenue and display advertising due to fluctuations in traffic to our websites and mobile applications. During the fourth quarter of each year, traffic to our marketplace has historically declined and our revenue has historically grown more slowly than in other quarters or has declined sequentially. For example, we experienced a decrease in the number of unique visitors to our marketplace in the fourth quarter of 2014 compared to the third quarter of 2014, due in part to seasonality. Conversely, we typically experience higher growth in traffic and revenue during the spring and summer months, when consumers are more likely to buy new homes. We expect that seasonality will continue to affect traffic in our marketplace, as well as our revenue from subscriptions and advertising.

Declines in, or changes to, the real estate industry could adversely affect our business and financial performance.

Our business and financial performance are affected by the health of, and changes to, the residential real estate industry. Although we have built and grown our business during a worldwide economic downturn, home-buying patterns are sensitive to economic conditions and tend to decline or grow more slowly during these periods. A decrease in home purchases could lead to reductions in user traffic, reductions in subscriptions by real estate professionals, and a decline in marketing spend by real estate professionals. Furthermore, online advertising products may be viewed by some existing and potential advertisers on our websites and mobile applications as a lower priority, which could cause advertisers to reduce the amounts they spend on advertising, terminate their use of our products, or default on their payment obligations to us. In addition, we may become subject to rules and regulations in the real estate industry that may restrict or complicate our ability to deliver our products. These changes would harm our business and operating results.

Most recently, beginning in 2008, domestic and global economic conditions deteriorated rapidly, resulting in a dramatic slowdown in the housing market, which slowed advertising spending in the real estate industry. In addition, changes to the regulation of the real estate industry and related areas, including mortgage lending and the deductibility of home mortgage interest, may negatively affect the prevalence of home purchases. Real estate markets also may be negatively impacted by a significant natural disaster, such as earthquake, fire, flood, or other disruption. Declines or disruptions in the real estate market or increases in mortgage interest rates could reduce demand for our products and could harm our business and operating results.

We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our business and operating results.

The market to provide home listings and marketing services for the residential real estate industry is highly competitive and fragmented. Homes are not typically marketed exclusively through any single channel. Consumers can access home listings and related data through more than one source. Accordingly, current and potential competitors could aggregate a set of listings similar to ours. We compete with online real estate marketplaces, such as Realtor.com, other real estate websites, and traditional offline media. We compete to attract consumers primarily on the basis of the number and quality of listings; user experience; the breadth, depth, and relevance of insights and other content on homes, neighborhoods, and professionals; brand and reputation; and the quality of mobile products. We expect that our marketing and product development expenses are likely to increase as we continue to seek to attract additional consumers and real estate professionals to our marketplace. For example, in 2014, we launched a national marketing campaign that is designed to attract serious home buyers and sellers to our marketplace.

We compete to attract real estate professionals primarily on the basis of the quality of our websites and mobile products, the size and attractiveness of the consumer audience, the quality and measurability of the leads we generate, the perceived return on investment we deliver, and the effectiveness of marketing and workflow tools. We also compete for advertisers against other media, including print media, television and radio, social networks, search engines, other websites, and email marketing. We compete primarily on the basis of the size and attractiveness of the audience; pricing; and the ability to target desired audiences.

 

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Many of our existing and potential competitors have substantial competitive advantages, such as:

 

   

greater scale;

 

   

stronger brands and greater name recognition;

 

   

longer operating histories;

 

   

more financial, research and development, sales and marketing, and other resources;

 

   

more extensive relationships with participants in the residential real estate industry, such as brokers, agents, and advertisers;

 

   

strong relationships with third-party data providers, such as multiple listing services and listing aggregators;

 

   

access to larger user bases; and

 

   

larger intellectual property portfolios.

The success of our competitors could result in fewer users visiting our websites and mobile applications, the loss of subscribers and advertisers, price reductions for our subscriptions and display advertising, weaker operating results, and loss of market share. Our competitors also may be able to provide users with products that are different from or superior to those we can provide, or to provide users with a broader range of products and prices.

We expect increased competition if our market continues to expand. In addition, current or potential competitors may be acquired by third parties with greater resources than ours, which would further strengthen these current or potential competitors and enable them to compete more vigorously or broadly with us. If we are not able to compete effectively, our business and operating results will be materially and adversely affected. Any increased marketing spending by one of our primary competitors could cause us to incur additional expenses, could reduce consumer traffic to, and subscribers of, our marketplace, or could harm our operating results.

If our users do not continue to contribute content or their contributions are not valuable to other users, our marketplace would be less attractive, which could negatively affect our unique visitor traffic and revenue.

Our success depends on our ability to provide consumers with the information they seek, which in turn depends in part on the content contributed by our users. We believe that one of our primary competitive advantages is the quality and quantity of the user-generated content in our marketplace, and that information is one of the main reasons consumers use our platform. If we are unable to provide consumers with the information they seek because our users do not contribute content, or because the content that they contribute is not helpful and reliable, the number of consumers visiting our websites and using our mobile applications may decline. If we experience a decline in consumers visiting our websites and using our mobile applications, real estate professionals and advertisers may not view our marketplace as attractive for their marketing expenditures, and may reduce their spending with us. Any decline in visits to our websites and usage of our mobile applications by consumers and any decline in spending by real estate professionals and advertisers with us would harm our business and operating results.

In addition, we monitor new contributions to user-generated content because we believe this metric is a key indicator of our user engagement and the strength of our community. In the event that the number of new contributions to user-generated content declines, this metric may provide a leading indicator of the health of our business. However, if the quantity of new contributions to user-generated content continues to increase but the quality of user-generated content declines, this metric would not capture any corresponding declines in user engagement or the strength of our community as evidenced by the lower quality of user-generated content, and such data would be of limited use in those circumstances.

 

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Our growth depends in part on our relationship with third parties to provide us with local information.

Third parties provide us with information that we use to provide users with insights that go beyond listings, such as information about schools, crime, and neighborhood amenities. Property descriptions and sale transactions obtained via third-party data providers also inform the valuations provided by our Trulia Estimates feature. If these third-party data providers terminate their relationships with us, the information that we provide to users may be limited or the quality of the information may suffer. If we are unable to renew our agreements with these data providers on favorable terms to us or to secure alternative sources for this information, our costs may increase and our business may be harmed.

If we do not display accurate and complete information on a timely basis, our user traffic may decline, our reputation would suffer, and our business and operating results would be harmed.

We receive listing and other information provided by listing aggregators and other third parties that we include on our websites and mobile applications. Our reputation with consumers depends on the accuracy and completeness of the information that we provide, although the accuracy and completeness of this data is often outside of our control. We cannot independently verify the accuracy or completeness of all of the information provided to us by third parties. If third parties provide us with inaccurate or incomplete information that we then display on our websites and mobile applications, consumers may become dissatisfied with our products, our traffic may decrease, and our reputation may suffer. Real estate professionals also expect listings data and other information to be accurate and complete, and to the extent our information is incorrect or incomplete, our reputation and business relationships may suffer.

In addition, we update the listing information that we provide on our websites and mobile applications on a daily basis. To the extent that we are no longer able to update information in our marketplace on a timely basis, or if consumers begin to expect updates in a more timely manner, we may be forced to make investments which allow us to update information with higher frequency. There can be no assurance that we will be able to provide information at a pace necessary to satisfy consumers in a cost-effective manner, or at all.

Growth of our business will depend on a strong brand, and any failure to maintain, protect, and enhance our brand would hurt our ability to retain or expand our base of users, or our ability to increase their level of engagement.

We believe that a strong brand is necessary to continue to attract and retain consumers and, in turn, the real estate professionals and others who choose to advertise on our websites and mobile applications. We need to maintain, protect, and enhance the “Trulia” and “Market Leader” brands in order to expand our base of users and increase their engagement with our websites and mobile applications. This will depend in part on our ability to continue to provide high-value, differentiated products, and we may not be able to do so effectively. This will also depend on our ability to successfully execute a broader marketing campaign to further promote our brand. In 2014, we launched a national marketing campaign that is designed to attract serious home buyers and sellers to our marketplace. If this campaign is not successful, our business could suffer. Furthermore, negative publicity about our company, including our content, technology, sales practices, personnel, or customer service could diminish confidence in and the use of our products, which could harm our operating results. If we are unable to maintain or enhance user and advertiser awareness of our brand cost effectively, our business, operating results, and financial condition could be harmed. In addition, our trulia.com and activerain.com websites serve as a forum for expression by our users, and if some of our users contribute inappropriate content and offend other users, our reputation could be harmed.

Our Market Leader brand could be harmed if customers do not provide quality service to prospective home buyers and sellers.

We rely on real estate professionals who are our customers of our Market Leader marketing services products to promote our Market Leader brand by providing high-quality service to prospective home buyers and sellers. We have little control over the activities of customers. If customers do not provide prospective home

 

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buyers and sellers with high-quality service, or if they use the functionality of our systems to send unwanted email to prospective home buyers or sellers, our brand value and our ability to generate leads may diminish.

We rely on a small number of advertising partners for a substantial portion of our Media revenue, and we are subject to risks as a result of this advertiser concentration.

In the years ended December 31, 2014, 2013 and 2012, our ten largest advertising partners accounted for more than 61%, 65%, and 63% of our Media revenue, respectively. One of our growth strategies is to increase the amount large advertisers spend in our marketplace, and we expect this revenue concentration to continue. If one or more of these large advertisers were to decrease or discontinue advertising with us, our business and operating results will be adversely affected.

Our operating results may be adversely affected by a failure to collect amounts owed to us by advertisers.

We often run display advertisements in our marketplace prior to receiving payment from an advertiser, which makes us subject to credit risks. In the past, certain advertisers have been unable to pay us due to bankruptcy or other reasons, and we cannot assure you that we will not experience collection issues in the future. If we have difficulty collecting amounts owed to us by advertisers, or fail to collect these amounts at all, our results of operations and financial condition would be adversely affected.

We depend on our talented personnel to grow and operate our business, and if we are unable to hire, retain, manage, and motivate our personnel, or if our new personnel do not perform as we anticipate, we may not be able to grow effectively.

Our future success will depend upon our continued ability to identify, hire, develop, motivate, and retain talented personnel. We may not be able to retain the services of any of our employees or other members of senior management in the future. We do not have employment agreements other than offer letters with any key employee, and we do not maintain key person life insurance for any employee. In addition, from time to time, there may be changes in our senior management team that may be disruptive to our business. If our senior management team fails to work together effectively and to execute our plans and strategies, our business could be harmed.

Our growth strategy also depends on our ability to expand our organization by hiring high-quality personnel. Identifying, recruiting, training, integrating, managing, and motivating talented individuals will require significant time, expense, and attention. Competition for talent is intense, particularly in the San Francisco Bay Area, where our headquarters is located. If we are not able to effectively recruit and retain our talent, our business and our ability to achieve our strategic objectives would be harmed.

Growth may place significant demands on our management and our infrastructure.

We have experienced substantial growth in our business that has placed, and may continue to place, significant demands on our management and our operational and financial infrastructure. As our operations grow in size, scope, and complexity, we will need to improve and upgrade our systems and infrastructure. The expansion of our systems and infrastructure will require us to commit substantial financial, operational, and technical resources in advance of an increase in the volume of business, with no assurance that the volume of business will increase. Continued growth could also strain our ability to maintain reliable service levels for our users and advertisers, develop and improve our operational, financial, and management controls, enhance our reporting systems and procedures, and recruit, train, and retain highly skilled personnel.

Our products are accessed by a large number of users, often at the same time. If the use of our marketplace continues to expand, we may not be able to scale our technology to accommodate increased capacity requirements, which may result in interruptions or delays in service. The failure of our systems and operations to meet our capacity requirements could result in interruptions or delays in service or impede our ability to scale our operations.

 

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Our employee growth will also require significant financial and management resources. For example, in 2014, we entered into a lease for new headquarters in San Francisco and relocated to the facility, as we needed additional headquarters office space to accommodate our growth. As lease rates in the San Francisco commercial real estate market have increased significantly in recent years, we will incur significantly higher facilities expenses for the new larger facility for our headquarters.

Managing our growth will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business, operating results, and financial condition would be harmed.

A significant disruption in service on our websites or of our mobile applications could damage our reputation and result in a loss of users of our products and of advertisers, which could harm our business, operating results, and financial condition.

Our brand, reputation, and ability to attract users and advertisers depend on the reliable performance of our network infrastructure, software platform and content delivery. We may experience significant interruptions with our systems in the future. Interruptions in these systems, whether due to system failures, computer viruses, or physical or electronic break-ins, could affect the security or availability of our products on our websites and mobile applications, and prevent or inhibit the ability of users to access our products. Problems with the reliability or security of our systems could harm our reputation, result in a loss of users of our products and of advertisers, and result in additional costs.

Substantially all of the communications, network, and computer hardware used to operate our trulia.com website and mobile applications are located at a single colocation facility in Santa Clara, California. Our software as a service operations depend on our ability to maintain and protect our computer systems, located in Bellevue, Washington and at other co-location facilities in Kent, Washington and other locations operated by third parties. While we have made investments to back up our system in the event of a disruption involving these facilities, our systems are not fully redundant. In addition, we do not own or control the operation of these facilities. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes, and similar events. The occurrence of any of these events could result in damage to our systems and hardware or could cause them to fail.

Problems faced by our third-party web hosting providers could adversely affect the experience of our users. Our third-party web hosting providers could close their facilities without adequate notice. Any financial difficulties, up to and including bankruptcy, faced by our third-party web hosting providers or any of the service providers with whom they contract may have negative effects on our business, the nature and extent of which are difficult to predict. If our third-party web hosting providers are unable to keep up with our growing capacity needs, our business could be harmed.

Any errors, defects, disruptions, or other performance or reliability problems with our network operations could cause interruptions in access to our products as well as delays and additional expense in arranging new facilities and services and could harm our reputation, business, operating results, and financial condition.

Our failure to protect confidential information of our users against security breaches could damage our reputation and brand and harm our business and operating results.

We maintain sensitive information provided by users and advertisers. We rely on encryption and authentication technology licensed from third parties to effect secure transmission of confidential information, including personally identifiable information and credit card numbers. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. If we are unable to maintain the security of confidential information that is provided to us by our users, our reputation and brand could be harmed and we may be exposed to a risk of loss or litigation and possible liability, any of which could harm our business and operating results.

 

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Failure to adequately protect our intellectual property could harm our business and operating results.

Our business depends on our intellectual property, the protection of which is crucial to the success of our business. We rely on a combination of patent, trademark, trade secret, and copyright law and contractual restrictions to protect our intellectual property. In addition, we attempt to protect our intellectual property, technology, and confidential information by requiring our employees and consultants to enter into confidentiality and assignment of inventions agreements and third parties to enter into nondisclosure agreements. These agreements may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property, or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, intellectual property, or technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our websites features, software, and functionality or obtain and use information that we consider proprietary.

We have registered “Trulia” as a trademark in the United States, and several other jurisdictions. We hold twenty-three trademarks registered in the United States and thirty-nine trademarks registered in other jurisdictions associated with our Trulia and Market Leader business. We have five patents registered and 12 patents pending application in the United States. Competitors may adopt service names similar to ours, thereby harming our ability to build brand identity and possibly leading to user confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of the terms “Trulia” or “Market Leader.”

We currently hold the “Trulia.com,” “Marketleader.com,” “Housevalues.com” and “RealEstate.com” Internet domain names and various other related domain names. The regulation of domain names in the United States is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain all domain names that use the names Trulia, Market Leader, Housevalues, or RealEstate.

Litigation or proceedings before the U.S. Patent and Trademark Office or other governmental authorities and administrative bodies in the United States and abroad may be necessary in the future to enforce our intellectual property rights, to protect our patent rights, trade secrets, and domain names and to determine the validity and scope of the proprietary rights of others. Our efforts to enforce or protect our proprietary rights may be ineffective and could result in substantial costs and diversion of resources, which could harm our business and operating results.

Intellectual property infringement assertions by third parties could result in significant costs and harm our business and operating results.

Other parties have asserted, and may in the future assert, that we have infringed their intellectual property rights. Such litigation may involve patent holding companies or other adverse patent owners who have no relevant product revenue, and therefore our own issued and pending patents may provide little or no deterrence. We could also be required to pay damages in an unspecified amount. For example, in September 2011, we entered into a settlement agreement with CIVIX-DDI LLC, or CIVIX, relating to a claim by CIVIX that we infringed two CIVIX patents relating to searching and locating real estate. Under the settlement agreement, we agreed to pay CIVIX to settle the litigation.

Litigation matters could cause us to incur significant expenses and costs. In addition, the outcome of any litigation is inherently unpredictable, and as a result of our litigation matters, we may be required to pay damages, an injunction may be entered against us that requires us to change certain features in our marketplace, or a license or other right to continue to deliver an unmodified version of such features may not be made available to us at all or may require us to pay ongoing royalties and comply with unfavorable terms. Any of these outcomes could harm our business. Even if we were to prevail, litigation matters can be costly and time-consuming, could divert the attention of our management and key personnel from our business operations, and may discourage consumers, real estate professionals, and advertisers from using our marketplace.

 

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From time to time, we also have other claims brought against us by third parties alleging infringement of their intellectual property. We cannot predict whether other assertions of third-party intellectual property rights or claims arising from such assertions will substantially harm our business and operating results. The defense of these claims and any future infringement claims, whether they are with or without merit or are determined in our favor, may result in costly litigation and diversion of technical and management personnel. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s patent or copyright rights; cease making, licensing or using products that are alleged to incorporate the intellectual property of others; expend additional development resources to redesign our products; and enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies. Royalty or licensing agreements, if required, may be unavailable on terms acceptable to us, or at all. In any event, we may need to license intellectual property, which would require us to pay royalties or make one-time payments. Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, the time and resources necessary to resolve them could harm our business, operating results, financial condition, and reputation.

We are subject to certain purported class action lawsuits relating to the Zillow Merger, which could materially adversely affect our business, financial condition and operating results.

We and our directors, Zillow and Zillow’s directors and HoldCo are subject to certain purported class action lawsuits relating to the Zillow Merger and additional lawsuits may be filed. While we intend to defend against the actions vigorously, the costs of the defense of such lawsuits and other effects of such litigation could have an adverse effect on our business, financial condition and operating results.

Valuation and other proprietary data may be subject to disputes.

We provide data that is relevant to the decision to purchase a home and some of this data is subject to revision, interpretation, or dispute. For example, our Trulia Estimates tool provides users with home valuations and is based on algorithms we have developed to analyze third-party data. We revise our algorithms regularly, which may cause valuations to differ from those previously provided. Consumers and real estate professionals sometimes disagree with our estimates. Any such variation in or disagreements about the estimates that we present could result in negative user feedback, harm our reputation, or lead to legal disputes.

We are subject to payments-related risks.

We accept payments using a variety of methods, including credit and debit cards. For certain payment methods, including credit and debit cards, we pay bank interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We rely on third parties to provide payment processing services, including the processing of credit and debit cards, and our business would be disrupted if these companies become unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, certification requirements, and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from consumers or facilitate other types of online payments, and our business and operating results could be adversely affected.

If we fail to comply with the various laws and regulations that govern the real estate industry, our business may be harmed.

Our business is governed by various federal, state and local laws and regulations governing the real estate industry, including the Real Estate Settlement Procedures Act (RESPA), the Fair Housing Act, state and local real estate broker licensing laws, federal and state laws prohibiting unfair and deceptive acts and practices, and federal and state advertising laws. We may not have always been and may not always be in compliance with each of these requirements. Failure to comply with these requirements may result in, among other things, revocation

 

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of required licenses, indemnification liability to contract counterparties, class action lawsuits, administrative enforcement actions and civil and criminal liability.

Due to the geographic scope of our operations and the nature of the services we provide, we may be required to obtain and maintain real estate brokerage licenses in certain states in which we operate. In connection with such licenses, we are required to designate individual licensed brokers of record. We cannot assure you that we are, and will remain at all times, in full compliance with state real estate licensing laws and regulations and we may be subject to fines or penalties in the event of any non-compliance. If in the future a state agency were to determine that we are required to obtain a real estate brokerage license in that state in order to receive payments or commissions from real estate professionals, or if we lose the services of a designated broker, we may be subject to fines or legal penalties or our business operations in that state may be suspended until we obtain the license or replace the designated broker. Any failure to comply with applicable laws and regulations may limit our ability to expand into new markets, offer new products or continue to operate in one or more of our current markets.

We may be limited in the way in which we market our business or generate revenue by federal law prohibiting referral fees in real estate transactions.

RESPA generally prohibits the payment or receipt of fees or any other thing of value for the referral of business related to a residential real estate settlement service, including real estate brokerage services. RESPA also prohibits fee shares or splits or unearned fees in connection with the provision of residential real estate settlement services. However, RESPA expressly permits payments pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and brokers. In addition, RESPA permits payments for goods or facilities furnished or for services actually performed, so long as those payments bear a reasonable relationship to the market value of the goods or facilities furnished or the services performed, excluding the value of any referrals that may be provided in connection with such goods, facilities or services. Failure to comply with RESPA may result in, among other things, administrative enforcement actions, class action lawsuits, and civil and criminal liability.

There has been limited guidance by the appropriate federal regulator or the courts regarding the applicability of RESPA to online marketing relationships for real estate or mortgage services, including those we provide. Nonetheless, RESPA may restrict our ability to enter into marketing and distribution arrangements with third parties, particularly to the extent that such arrangements may be characterized as involving payments for the referral of residential real estate settlement service business.

Our business is subject to a variety of state and federal laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business.

We are subject to a variety of federal and state laws, including laws regarding data retention, privacy, and consumer protection that are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting. For example, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. In addition, regulatory authorities are considering a number of legislative and regulatory proposals concerning data protection and other matters that may be applicable to our business. Changes to existing laws or regulations or the adoption of new laws or regulations could negatively affect our business. It is difficult to predict how existing laws will be applied to our business and the new laws to which we may become subject.

Our operating results may be harmed if we are required to collect sales taxes for our products.

There is general uncertainty in the industry about the obligation of Internet-based businesses to collect and remit sales taxes in jurisdictions where their commerce is solely virtual. In the current climate, it is possible that

 

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one or more states or countries could seek to impose sales or other tax collection obligations on us or our subscribers with regards to our products, which taxes may be applicable to past sales. A successful assertion that we should be collecting additional sales or other taxes on our products could result in substantial tax liabilities for past sales, discourage subscribers from purchasing our products, or otherwise harm our business and operating results.

If we fail to expand effectively into adjacent markets, our growth prospects could be harmed.

We intend to expand our operations into adjacent markets, such as rentals, mortgages, and home improvement, and into international geographies. We may incur losses or otherwise fail to enter these markets successfully. Our expansion into these markets will place us in competitive environments with which we are unfamiliar and involves various risks, including the need to invest resources and the possibility that returns on such investments will not be achieved for several years, or at all. In attempting to establish a presence in new markets, we expect to incur expenses and face various other challenges, such as expanding our sales force and management personnel to cover these markets.

 

Item 1B. Unresolved Staff Comments

None.

 

Item 2. Properties

On March 10, 2014, we entered into a lease effective November 1, 2014, for approximately 79,000 square feet of new office space at 535 Mission Street in San Francisco that houses our principal executive office. This office space replaced our former principal office at 116 New Montgomery Street in San Francisco, for which the lease expired in the fourth quarter of 2014. On July 25, 2014 we entered into a lease amendment under which we will lease an additional 26,620 square feet of office space commencing in October 2015 under the same terms and conditions.

On April 10, 2014, we entered into a lease effective May 1, 2014 for approximately 65,000 square feet of office space in the Denver metropolitan area. In September 2013, we entered into a lease effective through September 2021, for approximately 72,000 square feet of office space that houses our offices in Bellevue, WA. We lease additional office space in New York. We believe our facilities are sufficient for our current needs.

 

Item 3. Legal Proceedings

From time to time, we are subject to legal proceedings and claims in the ordinary course of business. We have received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights.

Zillow Merger Litigation

Between August 7, 2014 and August 20, 2014, four plaintiffs filed purported class action lawsuits against us and our directors, Zillow and HoldCo in connection with the Zillow Merger. Three of those purported class actions were brought in the Delaware Court of Chancery, captioned Shue et al. v. Trulia, Inc., et al., Case No. 10020 (August 7, 2014), Sciabacucci et al. v. Trulia, Inc., et al. , Case No. 10022 (August 8, 2014), and Steinberg et al. v. Trulia, Inc. et al. , Case No. 10049 (August 20, 2014). The fourth of those purported class actions was brought in the Superior Court of the State of California for the County of San Francisco, captioned  Collier et al. v. Trulia, Inc., et al ., Case No. CGC 14-540985 (August 7, 2014).

Each of the lawsuits alleges that our directors breached their fiduciary duties to Trulia stockholders, and that the other defendants aided and abetted such breaches, by seeking to sell Trulia through an allegedly unfair

 

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process and for an unfair price and on unfair terms. The Collier complaint filed in Delaware and the Sciabacucci complaint (as amended, as described below) also allege that our directors breached their fiduciary duties to Trulia stockholders, and that the other defendants aided and abetted such breaches, with respect to the contents of HoldCo’s registration statement on Form S-4. All lawsuits seek, among other things, equitable relief that would enjoin the consummation of the Zillow Merger and attorneys’ fees and costs. The Delaware actions also seek rescission of the Merger Agreement (to the extent it has already been implemented) or rescissory damages, and orders directing the individual defendants to account for alleged damages suffered by the plaintiff and the purported class as a result of the defendants’ alleged wrongdoing.

On September 23, 2014, the plaintiff in the Sciabacucci action filed an amended complaint, alleging substantially the same claims and seeking substantially the same relief as in the original complaint, and on September 24, 2014, the plaintiff filed (1) a motion for expedited proceedings, (2) a motion for a preliminary injunction, (3) a request for production of documents from defendants, and (4) notice of depositions. On October 7, 2014, the plaintiff in the Collier action filed a new complaint in Delaware Court of Chancery, captioned Collier et al. v. Trulia, Inc., et al ., Case No. 10209 (October 7, 2014), alleging substantially the same claims and seeking substantially the same relief as the original complaint filed in California. On October 8, 2014, the plaintiff in the Collier action filed a request for dismissal of the California case without prejudice. On October 13, 2014, the Delaware Court of Chancery issued an order consolidating all of the Delaware actions into one matter captioned In re Trulia, Inc. Stockholder Litigation , C.A. No. 10020-CB and appointed a lead counsel. On October 13 and 14, 2014, the above-referenced motions were refiled under the consolidated case number.

On November 19, 2014, the defendants entered into a memorandum of understanding with the  In re Trulia, Inc. Stockholder Litigation  plaintiffs regarding the settlement of that action. In connection with the settlement contemplated by the memorandum of understanding, with the defendants expressly denying that any of the claims has any merit, Trulia agreed to make certain additional disclosures related to the proposed merger, which disclosures Trulia made in a Form 8-K filed with the SEC on November 19, 2014. The memorandum of understanding contemplates that the parties will seek to enter into a stipulation of settlement.

The stipulation of settlement will be subject to customary conditions, including court approval following notice to the Trulia stockholders. In the event that the parties enter into a stipulation of settlement, a hearing will be scheduled at which the Delaware Court of Chancery will consider the fairness, reasonableness, and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the Delaware Court of Chancery will approve the settlement even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the memorandum of understanding may not be consummated

Although the results of litigation and claims cannot be predicted with certainty, we believe the final outcome of the matters discussed above will not have a material and adverse effect on our business, financial position, results of operations, or cash flows. We will, however, accrue for losses for any known contingent liabilities when future payment is probable and the amount is reasonably estimable.

 

Item 4. Mine Safety Disclosures.

Not applicable.

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and Holders of Record

Our common stock first listed on the New York Stock Exchange (“NYSE”) under the symbol “TRLA” on September 20, 2012. Prior to that date, there was no public trading market for our common stock. The following table sets forth for the periods indicated the high and low sales price per share of our common stock as reported on the NYSE for the periods indicated:

 

Year Ended December 31, 2014:    High      Low  

First Quarter

   $ 39.83       $ 28.15   

Second Quarter

   $ 48.68       $ 29.23   

Third Quarter

   $ 67.50       $ 38.38   

Fourth Quarter

   $ 54.05       $ 40.38   

 

Year Ended December 31, 2013:    High      Low  

First Quarter

   $ 38.22       $ 16.50   

Second Quarter

   $ 35.33       $ 27.52   

Third Quarter

   $ 52.71       $ 30.81   

Fourth Quarter

   $ 51.54       $ 26.35   

As of December 31, 2014, we had 58 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

On July 28, 2014, we entered into the Merger Agreement with Zillow and HoldCo, pursuant to which Zillow acquired us on February 17, 2015. On February 17, 2015, Trulia notified the NYSE that the Zillow Merger had been completed, and requested that trading of our common stock on the NYSE be suspended. In addition, an application on Form 25 was filed with the Securities and Exchange Commission to remove our common stock from listing on the NYSE and from registration under Section 12(b) of the Exchange Act. As a result, trading of our common stock on the NYSE was suspended before trading commenced on February 18, 2015.

Upon completion of the Zillow Merger, (i) each outstanding share of our common stock was converted into the right to receive 0.444 of a share of Class A common stock of HoldCo; (ii) each outstanding share of Class A common stock of Zillow was converted into the right to receive one share of Class A common stock of HoldCo; and (iii) each outstanding share of Class B common stock of Zillow was converted into the right to receive one share of Class B common stock of HoldCo. The Class A common stock of HoldCo has one vote per share and the Class B common stock of HoldCo has ten votes per share, similar to the former capital structure of Zillow.

Dividends

We have never declared or paid a cash dividend on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determinations to pay cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and any other factors that our board of directors may deem relevant.

Stock Performance Graph

We have presented below the cumulative total return to our stockholders during the period from September 20, 2012 (the date our common stock commenced trading on the NYSE) through December 31, 2014

 

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in comparison to the NYSE Composite Index and NYSE Arca Tech 100 Index. All values assume a $100 initial investment and data for the NYSE Composite Index and NYSE Arca Tech 100 Index assume reinvestment of dividends. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our common stock.

 

LOGO

The information under “Stock Performance Graph” is not deemed to be “soliciting material” or “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act, and is not to be incorporated by reference in any filing of Trulia under the Securities Act or the Exchange Act, whether made before or after the date of this Annual Report on Form 10-K and irrespective of any general incorporation language in those filings.

Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities

(a) Sales of Unregistered Securities

On December 17, 2013, we issued $230.0 million aggregate principal amount of 2.75% Convertible Senior Notes due 2020, or the 2020 Notes, which included a $30.0 million of principal amount issued pursuant to an option to purchase additional shares granted to the initial purchasers, in a private placement pursuant to exemptions from the registration requirements of the Securities Act. J.P. Morgan Securities LLC and Deustsche Bank Securities Inc. acted as representatives of the initial purchasers of the 2020 Notes. The 2020 Notes were issued only to “qualified institutional buyers” in compliance with Rule 144A under the Securities Act. We incurred $6.9 million in underwriting fees that were paid out of the gross proceeds from this offering.

In connection with the closing of the Zillow Merger on February 17, 2015, each outstanding 2020 Note which was convertible into shares of our common stock is now convertible into shares of Zillow Group, Inc. Class A common stock.

 

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(b) Use of Proceeds

On September 25, 2012, we closed our IPO pursuant to which we sold 5,900,000 shares of our common stock, which includes 900,000 shares sold pursuant to the exercise by the underwriters of an over-allotment option, at a public offering price of $17.00 per share, resulting in net proceeds to us of $89.4 million, after deducting underwriting discounts and commissions and offering expenses payable by us. In addition, another 1,000,000 shares were sold by certain selling stockholders. We did not receive any proceeds from sales by the selling stockholders. J.P. Morgan Securities LLC, Deutsche Bank Securities Inc., RBC Capital Markets, LLC, Needham & Company, LLC, and William Blair & Company, L.L.C acted as underwriters. No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates. We maintain the funds received in cash and cash equivalents. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed pursuant to Rule 424(b) with the Securities and Exchange Commission on September 19, 2012. From the effective date of the registration statement through December 31, 2014, we have used the net proceeds of the offering in connection with the acquisition of Market Leader and for working capital purposes and other general corporate purposes.

On March 20, 2013, we closed our follow-on public offering pursuant to which we sold 3,500,000 shares of our common stock, at a public offering price of $29.75 per share, resulting in net proceeds to us of $98.1 million, after deducting underwriting discounts and commissions and offering expenses payable by us. On March 26, 2013, we sold an additional 525,000 shares of our common stock pursuant to the exercise by the underwriters of an option to purchase additional shares, at a public offering price of $29.75 per share, resulting in net proceeds to us of $14.9 million, after deducting underwriting discounts and commissions and offering expenses payable by us. In addition, another 3,117,311 shares were sold by certain selling stockholders, which includes 406,606 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares. We did not receive any proceeds from sales by the selling stockholders. Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC, Needham & Company, LLC, and William Blair & Company, L.L.C acted as underwriters. No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates. We maintain the funds received in cash and cash equivalents. There has been no material change in the planned use of proceeds from our secondary public offering as described in our final prospectus filed pursuant to Rule 424(b) with the Securities and Exchange Commission on March 15, 2013. From the effective date of the registration statement through December 31, 2014, we have used the net proceeds of the offering in connection with the acquisition of Market Leader and for working capital purposes and other general corporate purposes.

On December 17, 2013 we issued $230.0 million aggregate principal amount of the 2020 Notes, which included a $30.0 million of principal amount issued pursuant to an option to purchase additional notes granted to the initial purchasers. We received net proceeds of $222.4 million, after deducting offering expenses of $7.6 million payable by us. Interest began to accrue on December 17, 2013 and is payable semi-annually every June 15 and December 15, starting on June 15, 2014. We may not redeem the 2020 Notes prior to December 20, 2018. We may redeem the notes, at our option, in whole or in part on or after December 20, 2018, subject to certain conditions. Holders of the notes may convert all or portion all or any portion of their notes, in multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding the maturity date. At the time of the Zillow Merger the notes were convertible at a conversion rate of a number of shares of HoldCo Class A common stock equal to 27.8303 times 0.444 per $1,000 principal amount of notes, subject to adjustment in certain events.

 

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c) Issuer Purchases of Equity Securities

 

Period

   (a)
Total Number of
Shares (Units)
Purchased
     (b)
Average Price Paid
per Share (or Unit)
     (c )
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced Plans
or Programs
     (c)
Maximum
number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
 

Month #1 (October 1, 2013—October 31, 2013) *

     521       $ 43.73         —           —     

Month #2 (November 1, 2013—November 30, 2013)

     —           —           —           —     

Month #3 (December 1, 2013—December 31, 2013) **

     1,085,383         27.64         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,085,904       $ 27.65         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

* We paid $23,000 to repurchase shares of our common stock in the open market at the market price of our common stock on the date of this transaction.
** We used $30.0 million of the net proceeds received from the issuance of the 2020 Notes to repurchase shares of our common stock from purchasers of the 2020 Notes in privately negotiated transactions effected through J.P. Morgan Securities LLC or its affiliate as our agent. The purchase price per share of the common stock repurchased in this transactions was equal the closing price per share of our common stock on December 11, 2013, which was $27.64.

Securities Authorized for Issuance Under Equity Compensation Plans

See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding securities authorized for issuance.

 

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Item 6. Selected Financial and Other Data

The following selected historical financial data below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our financial statements, and the related notes appearing in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K to fully understand factors that may affect the comparability of the information presented below.

The statements of operations data for the years ended December 31, 2014, 2013, and 2012 and the balance sheet data as of December 31, 2014 and 2013 are derived from our audited financial statements appearing in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K. The statements of operations for the years ended December 31, 2011 and 2010, and the balance sheet data as of December 31, 2012, 2011 and 2010 are derived from audited financial statements not included in this Annual Report on Form 10-K. The statement of operations for the year ended December 31, 2013 includes results of Market Leader operations in the post-acquisition period from August 21, 2013 through December 31, 2013. Our historical results are not necessarily indicative of the results to be expected in the future.

 

     Year Ended December 31,  
     2014     2013     2012     2011     2010  
     (In thousands, except share and per share data)  

Statement of Operations Data:

          

Revenue

   $ 251,937      $ 143,728      $ 68,085      $ 38,518      $ 19,785   

Cost and operating expenses: (1)

          

Cost of revenue (exclusive of amortization)  (2)

     44,538        23,122        9,999        5,795        3,657   

Technology and development

     57,643        34,612        20,199        14,650        8,803   

Sales and marketing

     144,180        71,370        33,747        17,717        8,638   

General and administrative

     49,964        32,702        13,659        6,123        2,501   

Acquisition costs

     18,144        6,065        —          —          —     

Restructuring costs

     4,987        —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost and operating expenses

     319,456        167,871        77,604        44,285        23,599   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (67,519     (24,143     (9,519     (5,767     (3,814

Other income (expense)

     (431     121        50        17        15   

Interest expense

     (7,386     (1,107     (1,016     (389     (39

Change in fair value of warrant liability

     —          —          (369     (16     —     

Loss on extinguishment of debt

     —          (141     —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (75,336     (25,270     (10,854     (6,155     (3,838

Income tax (provision) benefit

     (427     7,511        (67     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (75,763   $ (17,759   $ (10,921   $ (6,155   $ (3,838
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted (3)

   $ (2.03   $ (0.54   $ (0.87   $ (0.92   $ (0.64
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted (3)

     37,335,200        33,129,572        12,538,769        6,657,045        6,016,550   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial Information:

          

Adjusted EBITDA (4)

   $ 29,705      $ 17,106      $ (3,364   $ (1,787   $ (2,497
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1)  

Compensation paid in stock was allocated as follows:

 

     Year Ended December 31,  
     2014      2013      2012      2011      2010  
     (In thousands)  

Cost of revenue

   $ 3,088       $ 718       $ 32       $ 11       $ 8   

Technology and development

     10,671         6,365         930         482         176   

Sales and marketing

     14,172         5,663         398         183         97   

General and administrative

     17,002         10,227         1,210         808         73   

Restructuring costs

     82        —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total compensation paid in stock

   $ 45,015       $ 22,973       $ 2,570       $ 1,484       $ 354   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(2)        Amortization of product development costs were included in technology and development as follows:

   $ 6,363       $ 2,660       $ 1,108       $ 708       $ 366   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(3)  

See Note 11 to our audited financial statements for an explanation of the method used to calculate basic and diluted net loss per share attributable to common stockholders and the weighted average number of shares used in the computation of the per share amounts.

(4)  

See “Non-GAAP Financial Measures” for more information and a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States, or GAAP.

 

    As of December 31,  
    2014     2013     2012     2011     2010  
    (In thousands)  

Balance Sheet Data:

         

Cash and cash equivalents and short-term investments

  $ 198,781      $ 225,597      $ 100,017      $ 11,341      $ 4,395   

Working capital (deficit)

    181,564        213,336        82,632        4,165        (132

Property and equipment, net

    49,755        22,289        7,069        5,548        3,465   

Total assets

    640,514        655,409        118,964        24,195        15,710   

Deferred revenue

    9,320        10,002        13,296        4,827        1,810   

Total indebtedness

    230,000        230,000        9,759        9,592        1,955   

Preferred stock warrant liability

    —          —          —          297        —     

Total stockholders’ equity

    360,247        381,076        86,534        3,039        7,142   

Non-GAAP Financial Measures

Adjusted EBITDA is a financial measure that is not calculated in accordance with generally accepted accounting principles in the United States, or GAAP. We define Adjusted EBITDA as net loss adjusted to exclude interest income, interest expense, loss on extinguishment of debt, income taxes, depreciation and amortization, change in the fair value of our warrant liability, compensation paid in stock, and certain other infrequently occurring items that Trulia does not believe are indicative of ongoing results (such as acquisition or restructuring costs). Below, we have provided a reconciliation of Adjusted EBITDA to our net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate Adjusted EBITDA in the same manner as we calculate the measure.

We include Adjusted EBITDA in this Annual Report on Form 10-K because it is an important measure upon which our management assesses our operating performance. We use Adjusted EBITDA as a key performance measure because we believe it facilitates operating performance comparisons from period to period by excluding potential differences primarily caused by variations in capital structures, tax positions, the impact of depreciation and amortization expense on our fixed assets, changes related to the fair value remeasurements of our preferred

 

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stock warrant, and the impact of the compensation paid in stock. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we also use Adjusted EBITDA for business planning purposes, to incentivize and compensate our management personnel, and in evaluating acquisition opportunities. In addition, we believe Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies, and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities.

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

   

Adjusted EBITDA does not reflect our cash expenditures for capital equipment or other contractual commitments;

 

   

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect capital expenditure requirements for such replacements;

 

   

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

   

Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness; and

 

   

Other companies, including companies in our industry, may calculate Adjusted EBITDA measures differently, which reduces their usefulness as a comparative measure.

In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including our net loss and other GAAP results.

The following table presents a reconciliation of Adjusted EBITDA to our net loss, the most comparable GAAP measure, for each of the periods indicated:

 

     Year Ended December 31,  
     2014     2013     2012     2011     2010  
     (In thousands)  

Net loss attributable to common stockholders

   $ (75,763   $ (17,759   $ (10,921   $ (6,155   $ (3,838

Non-GAAP adjustments:

          

Other (income) expense

     431        (121     (50     (17     (15

Interest expense

     7,386        1,107        1,016        389        39   

Loss on extinguishment of debt

     —          141        —          —          —     

Depreciation and amortization

     28,772        12,211        3,585        2,496        963   

Change in fair value of warrant liability

     —          —          369        16        —     

Income tax provision (benefit)

     427        (7,511     67        —          —     

Compensation paid in stock

     44,933        22,973        2,570        1,484        354   

Acquisition costs

     18,144        6,065        —          —          —     

Restructuring costs—GAAP

     4,987        —          —          —          —     

Restructuring costs—Other

     388        —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 29,705      $ 17,106      $ (3,364   $ (1,787   $ (2,497
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Statements containing words such as “may,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “project,” “projections,” “business outlook,” “estimate,” or similar expressions constitute forward-looking statements. Our actual results could differ materially from those contained in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K.

Overview

Trulia is redefining the home search experience for consumers and changing the way that real estate professionals build their businesses. Our marketplace, delivered through the web and mobile applications, gives consumers powerful tools to research homes and neighborhoods and enables real estate professionals to efficiently market their listings and attract and manage new clients. We believe we deliver the best home search experience by combining our superior user interface with our comprehensive database of real estate properties, local insights, and user-generated content. We also offer a comprehensive suite of free and subscription products that provide real estate professionals with access to transaction-ready consumers and help them to grow and manage their online presence. We also generate media revenue from sales of display advertising on our websites and mobile applications .

Key elements of our marketplace are extensive consumer reach, an engaged base of real estate professionals, and a comprehensive database of real estate information and local insights. We also offer free and subscription-based products that provide comprehensive marketing and customer relationship management (“CRM”) solutions for real estate professionals. In the year ended December 31, 2014, we had approximately 48.0 million monthly unique visitors. In addition, as of December 31, 2014, we had more than 540,000 active real estate professionals in our Trulia marketplace and 181,000 active real estate professionals using our Market Leader software and services. Approximately 79,300 of these real estate professionals were paying subscribers (assuming a 20% overlap between Trulia subscribers and Market Leader’s premium subscribers).

Our large, continually refreshed, and searchable database contains approximately 114.0 million properties, including 3.0 million homes for sale and rent. We supplement listings data with local information on schools, crime, commute time, neighborhood amenities, rental prices, and historical earthquake, flood and other natural disaster data to provide unique insights into each community. In addition, we harness rich, insightful user-generated content from our active community of contributors, including consumers, local enthusiasts, and real estate professionals. With 16.6 million unique user contributions, we believe we have the largest collection of user-generated content on homes, neighborhoods, and real estate professionals. We deliver this information on mobile devices through our iPhone, iPad, Android Phone, Android tablet, and Kindle Fire applications and also provide tailored mobile experiences, such as GPS-based search.

We offer our products free to consumers. We deliver hard to find insights on homes, neighborhoods, and real estate professionals in an intuitive and engaging way, helping consumers make more informed housing decisions. Our free products attract users to our marketplace and the quality of our products drives the growth of our audience and promotes deep engagement by our users. We believe this leads real estate professionals to convert to paying subscribers and brand advertisers to purchase our advertising products.

For real estate professionals, we offer a suite of free and subscription products to promote themselves and their listings online, manage and grow their businesses and to connect with consumers searching for homes. We generate revenue primarily from sales of subscription marketing products and our software-as-a-service customer relationship management products that we offer to real estate professionals. Our Trulia Pro and Trulia Premium Listings products allow real estate professionals to receive prominent placement of their listings in our search

 

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results. With our Trulia Local Ads and Trulia Mobile Ads products, real estate professionals can purchase local advertising on our Trulia website and mobile applications, respectively, by locale and by share of a given market. With our recently launched Trulia Seller Ads product, real estate professionals can generate leads from consumers interested in selling their homes. With our software-as-a-service products, real estate professionals can manage and cultivate clients and potential clients by automating daily tasks and efficiently marketing their services. We charge real estate professionals subscription fees for our software-as-a-service products. We also generate revenue through enterprise marketing agreements with real estate franchise networks. We provide a base level software-as-a-service product to all agents and/or brokerages in these franchise networks in exchange for certain minimum payments from the real estate franchise networks. We also generate revenue through the sale of premium software and marketing products to individual agents, teams and brokerage offices within these real estate franchise networks.

In addition, we generate revenue from display advertising we sell to leading advertisers engaged in promoting their brand to our attractive audience. Pricing for our display advertisements is based on advertisement size and position on our web page, and fees are primarily based on a Cost-Per-Thousand, Cost-Per-Click, or Cost-Per-Lead basis.

To date, we have focused our efforts and investments on developing and delivering superior products and user experiences, attracting consumers and real estate professionals to our marketplace, selling our products and growing our revenue. We intend to continue to spend on technology and engineering in order to further improve the experience of our users and offer the most comprehensive end-to-end marketing and customer relationship management solutions for real estate professionals.

We believe that the growth of our business and our future success are dependent upon many factors including our ability to increase our audience size and user engagement, grow the number of our paying subscribers, increase the value of our advertising and software-as-a-service products, achieve the anticipated benefits of the Market Leader acquisition, and successfully invest in our growth. While each of these areas presents significant opportunities for us, they also pose important challenges that we must successfully address in order to sustain the growth of our business and improve our operating results. We also expect that our efforts to maintain or increase consumer traffic and subscribers are likely to include, among other things, increases to our marketing spending and expenditures to increase the number of our engineering and product development personnel. In 2014, we launched a national marketing campaign that is designed to attract serious home buyers and sellers to our marketplace.

Acquisition by Zillow, Inc.

On July 28, 2014, we entered into the Merger Agreement with Zillow and HoldCo, pursuant to which Zillow acquired us on February 17, 2015. Pursuant to the Merger Agreement, both we and Zillow have become wholly-owned subsidiaries of HoldCo.

Upon completion of the Zillow Merger, (i) each outstanding share of our common stock was converted into the right to receive 0.444 of a share of Class A common stock of HoldCo; (ii) each outstanding share of Class A common stock of Zillow was converted into the right to receive one share of Class A common stock of HoldCo; and (iii) each outstanding share of Class B common stock of Zillow was converted into the right to receive one share of Class B common stock of HoldCo. The Class A common stock of HoldCo has one vote per share and the Class B common stock of HoldCo has ten votes per share, similar to the former capital structure of Zillow.

In addition, subject to certain exceptions, each Trulia stock option, restricted stock unit and stock appreciation right outstanding immediately prior to the consummation of the Merger, whether or not vested and exercisable was assumed by HoldCo and converted into a corresponding equity award to purchase, acquire shares of, or participate in the appreciation in price of, HoldCo Class A Common Stock. The terms of each assumed equity award are the same except that the number of shares subject to each equity award and the per share exercise price, if any, was adjusted based on the exchange ratio per a formula set forth in the Merger Agreement.

 

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On September 12, 2014, HoldCo filed a Registration Statement on Form S-4 with the SEC to register the shares of HoldCo’s common stock to be issued to shareholders of Zillow and stockholders of Trulia as consideration in the acquisition in exchange for the Zillow and Trulia common stock. The Registration Statement on Form S-4 was declared effective by the SEC on November 17, 2014. On December 18, 2014, Zillow’s shareholders and Trulia’s stockholders approved the Zillow Merger. In connection with the closing of the Zillow Merger on February 17, 2015, Trulia filed an application on Form 25 with the SEC to remove Trulia’s common stock from listing on the NYSE and from registration under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Trulia intends to file a certificate on Form 15 requesting that its reporting obligations under Sections 13 and 15(d) of the Exchange Act be terminated. HoldCo Class A Common Stock began trading on the NASDAQ Global Select Market on February 18, 2015.

Restructuring

On February 17, 2015, in connection with the Zillow Merger, we undertook a restructuring plan that will result in a total workforce reduction of approximately 342 employees, or approximately 32% of our workforce, at our Bellevue, Denver, New York and San Francisco locations, primarily in the sales and marketing functions. The restructuring plan is a result of the integration of our business and operations with and into Zillow’s business. Employees directly affected by the restructuring plan will be provided with severance payments, vesting acceleration, and outplacement assistance.

As a result of the restructuring plan, we plan to record a one-time restructuring charge of between approximately $21.5 million and $24.5 million in 2015, primarily representing cash payments for severance and other personnel related expenses, and non-cash expenses related to stock vesting acceleration. Severance payments will be paid out by the end of 2015. The restructuring charge that we expect to incur in connection with the restructuring is subject to a number of assumptions, and actual results may materially differ. We may also incur other material charges not currently contemplated due to events that may occur as a result of, or associated with, the restructuring plan.

In June 2014, our board of directors approved a restructuring plan to accelerate the integration of our Market Leader operations with those of Trulia, to eliminate overlapping positions, and to streamline operations. We implemented this restructuring plan to shorten the time to market for our products and to drive further growth. Further details on the restructuring are presented in Note 12 to our audited consolidated financial statement included in this Annual Report on Form 10-K.

Convertible Senior Notes

On December 17, 2013 we issued $230.0 million aggregate principal amount of 2.75% Convertible Senior Notes due in 2020, or the 2020 Notes, which included a $30.0 million of principal amount issued pursuant to an option to purchase additional notes granted to the initial purchasers. The aggregate principal amount of the 2020 Notes is due on December 15, 2020. We received net proceeds of $222.4 million, after deducting offering expenses of $7.6 million payable by us. Interest began to accrue on December 17, 2013 and is payable semi-annually every June 15 and December 15, starting on June 15, 2014. We may not redeem the 2020 Notes prior to December 20, 2018. We may redeem the 2020 Notes, at our option, in whole or in part on or after December 20, 2018, subject to certain conditions. Holders of the 2020 Notes may convert all or any portion of their notes, in multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding the maturity date. At the time of the Zillow Merger, the notes were convertible at a conversion rate of a number of shares of HoldCo Class A common stock equal to 27.8303 times 0.444 per $1,000 principal amount of notes, subject to adjustment in certain events.

In connection with the closing of the Zillow Merger on February 17, 2015, each outstanding 2020 Note which was convertible into shares of our common stock is now convertible into shares of HoldCo Class A Common Stock.

 

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Acquisition of Market Leader, Inc.

On August 20, 2013 we completed the acquisition of Market Leader, Inc., or Market Leader, for approximately $372.7 million, including 4,412,489 million shares of our common stock valued at $189.3 million, and $170.5 million in cash and assumed Market Leader equity awards valued at $26.7 million, $12.9 million of which was included in the purchase price and the remaining amount was subject to post-acquisition service requirement and was being expensed prospectively. Market Leader is a provider of software-as-a-service based customer relationship management software for the real estate sector. We acquired Market Leader to help accelerate our growth, including by expanding our product portfolio for real estate professionals and increasing our subscriber base. Our consolidated financial statements include the results of operations for Market Leader beginning on August 21, 2013.

Follow-on Public Offering

In March 2013, we completed our follow-on public offering in which we sold an aggregate of 4,025,000 shares of our common stock, which included 525,000 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at a public offering price of $29.75 per share. In addition, another 3,117,311 shares were sold by certain selling stockholders, which included 406,606 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares. We received aggregate net proceeds of $113.0 million, after deducting underwriting discounts and commissions and offering expenses payable by us, from sales of our shares in the offering. We did not receive any of the proceeds from the sales of shares by the selling stockholders.

Key Business Metrics

To analyze our business performance, determine financial forecasts, and help develop long-term strategic plans, we review the key business metrics below.

 

   

Monthly Unique Visitors . We count a unique visitor the first time a computer or mobile device with a unique IP address accesses trulia.com (including our Trulia blogs), any of our more than 177,000 agent websites powered by Market Leader, or our mobile websites and applications during a calendar month. If an individual accesses any of the websites or mobile applications using different IP addresses within a given month, the first access by each such IP address is counted as a separate unique visitor. If an individual accesses more than any one of our websites in a single month, the first access to each website is counted as a separate unique user since unique users are tracked separately for each domain. Our number of monthly unique visitors includes mobile monthly unique visitors. We calculate our monthly unique visitors based on the monthly average over the applicable period. The third quarter of 2013 was the first quarter in which we included our consumer facing blogs in our monthly unique visitor count, and starting in March 2014 of the first quarter of 2014 we began including all other blogs in our monthly unique visitor count. We view monthly unique visitors as a key indicator of the growth in our business and audience reach, the quality of our products, and the strength of our brand awareness. In the year ended December 31, 2014, the total number of monthly unique visitors increased to 48.0 million from 37.8 million in the year ended December 31, 2013, a 27% increase. We attribute the growth in our monthly unique visitors principally to our marketing campaign efforts, the popularity of our mobile products, and the overall industry trend of more consumers using the web and mobile applications to research housing decisions.

 

   

Mobile Monthly Unique Visitors . We count a unique mobile visitor the first time a mobile device with a unique IP address accesses trulia.com (including our Trulia blogs starting March 2014), any of our more than 177,000 agent websites powered by Market Leader, or our mobile websites and applications during a calendar month. We calculate our mobile monthly unique visitors based on the monthly average over the applicable period. These mobile monthly unique visitors are included in our monthly unique visitors metric. We view mobile monthly unique visitors as a key indicator of the growth in our business and audience reach, and believe that having more unique visitors using our mobile applications will drive faster growth in our revenue. We plan to expand our mobile products to support our rapidly growing mobile user base. In the year ended December 31, 2014, the number of mobile

 

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monthly unique visitors increased to 23.7 million from 14.2 million in the year ended December 31, 2013, a 67% increase. We attribute this growth to our marketing campaign efforts, the overall adoption of smartphones and the growth of mobile applications and mobile web use by consumers. We also attribute the growth in our mobile monthly unique visitors to our increased efforts in developing a mobile website and mobile applications. Due to the significant growth rate of usage of our mobile products and solutions, our mobile monthly unique visitors has grown as a percentage of our monthly unique visitors over recent periods and we expect this trend to continue.

 

   

New Contributions to User-Generated Content . We define user-generated content as any content contributed by a user through trulia.com , or Trulia’s mobile websites or applications, such as Q&A discussions, blogs, blog comments, user votes, recommendations, and neighborhood ratings and reviews. In the year ended December 31, 2014, new contributions to user-generated content increased by approximately 4.8 million contributions, and we now have over 16.6 million cumulative contributions on our marketplace. We expect new contributions to user-generated content to continue to grow as our monthly unique visitors and total subscribers grow and as we introduce new features to trulia.com and our Trulia mobile websites and applications. While the absolute number of new contributions to user-generated content may continue to grow period-over-period, the rate of growth has slowed and we expect that the rate of growth may continue to slow as the aggregate size of our user-generated content increases. We believe the slowing growth rate of new contributions to user-generated content is a function of the large historical number of new contributions to user-generated content on our marketplace, which makes achievement of increasing rates of growth more challenging. We continue to focus on promoting new contributions to user-generated content to increase the engagement of our users with our marketplace.

 

   

Total Subscribers . We define a subscriber as a real estate professional with a paid subscription at the end of a period. This includes agents using our premium software-as-a-service product under a licensed purchased by their brokerage, and excludes subscribers to certain legacy Market Leader properties, such as activerain.com and SharperAgent. Total subscribers has been, and we expect will continue to be, a key driver of revenue growth. It is also an indicator of our market penetration, the value of our products, and the attractiveness of our consumer audience to real estate professionals. As of December 31, 2014, we had approximately 79,300 total subscribers, a 33% increase from approximately 60,000 total subscribers as of December 31, 2013, assuming a 20% overlap between Trulia and Market Leader. We attribute the growth in our total subscribers to our increasing sales and marketing efforts, principally from the growth of our inside sales team, as well as growth in monthly unique visitors. Although our total subscribers are growing period-over-period and we expect total subscribers to continue to grow, the rate of growth may slow as we increase efforts to sell more products to existing subscribers. In addition, subscribers often purchase subscriptions for limited periods as a result of seasonality, as part of their advertising campaigns, and other factors.

 

   

Average Monthly Revenue per Subscriber . We calculate our average monthly revenue per subscriber by dividing the revenue generated from subscriptions of our lead generation products and our software-as-a-service products in a period by the average number of subscribers in the period, divided again by the number of months in the period. Our average number of subscribers is calculated by taking the average of the beginning and ending number of subscribers for the period, and assumes a 20% overlap between Trulia and Market Leader. Our average monthly revenue per subscriber is a key indicator of our ability to monetize our marketplace and the performance of our software-as-a-service subscription products for real estate professionals, and we monitor changes in this metric to measure the effectiveness of our monetization strategy. As our new and existing subscribers mature, we have been able to increase our average monthly revenue per subscriber by launching new products to sell to these customers, redesigning existing products to expand inventory in high demand zip codes, raising prices in certain geographic markets, and selling to existing subscribers the additional advertising inventory created by traffic growth to our marketplace. In addition, in geographic markets that show strong demand for our Trulia subscription products—those where inventory is sold out and wait lists to purchase our products

 

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exist—average monthly revenue per subscriber is higher than in markets with less demand for these products. While our average monthly revenue per subscriber has increased and may continue to increase in absolute dollars year-over-year, the rate of increase has slowed and we expect that the rate of increase may continue to slow. We believe that the slowing growth rate of our average monthly revenue per subscriber is the result of the consolidation of the historically lower Market Leader average monthly revenue per subscriber into this key business metric, our larger subscriber base and the resulting challenge associated with achieving higher growth rates and our efforts to introduce new, lower priced, entry level lead generation products to attract new subscribers. Despite this slowing growth rate, we believe we have significant opportunities to continue to increase average monthly revenue per subscriber by further penetrating markets and by offering new products to existing subscribers.

Our key business metrics are as follows:

 

     Year Ended December 31,  
     2014      2013      2012  

Monthly unique visitors (in thousands)

     48,030         37,756         23,145   

Mobile monthly unique visitors (in thousands)

     23,696         14,203         6,760   

New contributions to user-generated content (in thousands)

     4,795         4,362         3,050   

Total subscribers (at period end)

     79,254         59,677         24,443   

Average monthly revenue per subscriber ($)

     209         193         156   

Components of Statements of Operations

Revenue

Our revenue is comprised of Marketplace revenue and Media revenue.

Marketplace Revenue. Marketplace revenue primarily consists of products and services sold to real estate professionals, including agents, brokers, agents of property managers, builders, and mortgage lenders on a fixed fee subscription, Cost Per Click (“CPC”) or Cost Per Lead (“CPL”) basis. We currently sell four sets of products to real estate professionals on a subscription basis. The first set of products, which includes Trulia Local Ads and Trulia Mobile Ads , enables real estate professionals to promote themselves on our search results pages and property details pages for a local market area. Real estate professionals purchase subscriptions to these products based upon their specified market share for a city or zip code, at a fixed monthly price, for periods ranging from one month to one year, with pricing depending on demand, location, and the percentage of market share purchased. Our second set of products allows real estate professionals to receive prominent placement of their listings in our search results. Real estate professionals sign up for new subscriptions to this product at a fixed monthly price for periods that generally range from 6 months to 24 months. Our third set of products includes Trulia Seller Ads that enable real estate professionals to generate leads from consumers interested in selling their homes. Our fourth set of products is our comprehensive premium software-as-a-service based marketing products typically sold to real estate professionals as a bundle of products under a fixed fee subscription. We also sell a base version of these products to strategic franchise networks for specified contractual amounts over a number of years and partner with them to drive adoption of our premium solution across their network.

Media Revenue. Media revenue primarily consists of display advertising sold on a Cost per Thousand (“CPM”), CPC, and CPL basis to advertisers promoting their brand on trulia.com, our mobile website, m.trulia.com and our partners websites (cumulatively “Trulia Websites”). Impressions are the number of times an advertisement is loaded on a web page and clicks are the number of times users click on an advertisement. Revenue is recognized in the periods the clicks or impressions are delivered. Pricing is primarily based on advertisement size and position on the Trulia Websites and fees are generally billed monthly. As our mobile web pages and mobile applications offer less space on which to display advertising, a shift in user traffic from our websites to mobile products could decrease our advertising inventory and negatively affect our Media revenue. Recently, we have experienced a shift in user traffic as our mobile monthly unique visitors have continued to grow at a rapid pace and our monthly unique visitors have stayed relatively constant.

 

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In the third quarter of 2013, we changed how we define our Marketplace revenue and Media revenue. The changes primarily relate to the re-classification of products and services sold to mortgage lenders. The change in definitions did not change total revenue reported in any period. The following table provides a comparison of Marketplace revenue and Media revenue as currently classified and as previously classified for all periods presented. Marketplace revenue and Media revenue have been reclassified for all periods disclosed herein.

 

     Year Ended December 31,  
     2014      2013      2012  

Marketplace revenue (current definition)

   $ 210,335       $ 113,383       $ 47,805   

Marketplace revenue (previous definition)

   $ —         $ 107,712       $ 45,475   

Media revenue (current definition)

   $ 41,602       $ 30,345       $ 20,280   

Media revenue (previous definition)

   $ —         $ 36,016       $ 22,610   

In addition, as noted above, in the year ended December 31, 2013, we have added the contribution of Market Leader to Marketplace revenue from August 21, 2013 (the day after the closing of our acquisition of Market Leader) through December 31, 2013.

Cost and Operating Expenses

Cost of Revenue. Cost of revenue consists primarily of expenses related to operating our websites and mobile applications, including those associated with the operation of our data centers and customer websites, hosting fees, customer service related headcount related expenses including salaries, bonuses, benefits and compensation paid in stock, cost to generate leads for customers, licensed content, multiple listing services fees, revenue sharing costs, credit card processing fees, third-party contractor fees, and allocated overhead.

Technology and Development. Technology and development expenses consist primarily of headcount related expenses including salaries, bonuses, benefits and compensation paid in stock, third-party contractor fees, and allocated overhead primarily associated with developing new technologies. Technology and development also includes amortization expenses related to capitalized costs from internal and external development activities for our marketplace.

Sales and Marketing. Sales and marketing expenses consist primarily of headcount related expenses including salaries, bonuses, commissions, benefits and compensation paid in stock for sales, customer service, marketing, and public relations employees; advertising expenses and third-party contractor fees. Sales and marketing expenses also include other sales expenses related to promotional and marketing activities, and allocated overhead.

General and Administrative. General and administrative expenses consist primarily of headcount related expenses including salaries, bonuses, benefits and compensation paid in stock for executive, finance, accounting, legal, human resources, recruiting, and administrative support personnel. General and administrative expenses also include legal, accounting, and other third-party professional service fees, bad debt, and allocated overhead costs.

Interest Income

Interest income consists primarily of interest earned on our cash and cash equivalent and short-term investment balances.

Interest Expense

Interest expense consists primarily of interest on our outstanding long-term debt and capital lease obligations. See Note 7 of our audited consolidated financial statements included in this Annual Report on Form 10-K for more information about our long-term debt.

 

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Change in Fair Value of Warrant Liability

Change in fair value of the warrant liability includes charges from the remeasurement of our preferred stock warrant liability on a mark-to-market basis as of each period end. These preferred stock warrants became warrants to purchase common stock upon the completion of our IPO, at which time the warrant liability was remeasured to fair value and the remaining liability was reclassified as additional paid-in capital

Provision for Income Taxes

Our provision for income taxes has not been historically significant to our business as we have incurred operating losses to date.

As a result of the acquisition of Market Leader in August 2013, we recorded a tax benefit of $7.9 million as a discrete item in the three months ended September 30, 2013. This tax benefit is a result of the partial release of its existing valuation allowance immediately prior to the acquisition since the acquired deferred tax liabilities from Market Leader will provide a source of income for us to realize a portion of our deferred tax assets, for which a valuation allowance is no longer needed.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or US GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. In many instances, we could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur from period-to-period. Actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our judgments and estimates.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price to the buyer is fixed or determinable, and collection is reasonably assured. We consider a signed agreement, a binding insertion order, or other similar documentation reflecting the terms and conditions under which products will be provided to be persuasive evidence of an arrangement. Collectability is assessed based on a number of factors, including payment history and the creditworthiness of a customer. If it is determined that collection is not reasonably assured, revenue is not recognized until collection becomes reasonably assured, which is generally upon receipt of cash.

Our revenue is comprised of Marketplace revenue and Media revenue.

We enter into arrangements with customers that include combinations of CPC media placements, CPM media placements, and subscription products.

We allocate arrangement consideration in multiple-element revenue arrangements at the inception of an arrangement to all deliverables or those packages in which all components of the package are delivered at the same time, based on the relative selling price method in accordance with the selling price hierarchy, which includes: (i) vendor-specific objective evidence (“VSOE”), if available; (ii) third-party evidence (“TPE”), if VSOE is not available; and (iii) best estimate of selling price (“BESP”), if neither VSOE nor TPE is available.

 

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VSOE-  We determine VSOE based on our historical pricing and discounting practices for the specific product when sold separately. In determining VSOE, we require that a substantial majority of the standalone selling prices for these products fall within a reasonably narrow pricing range. For certain subscription products, we have been able to establish VSOE.

TPE-  When VSOE cannot be established for deliverables in multiple-element arrangements, we apply judgment with respect to whether we can establish a selling price based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our go-to-market strategy differs from that of our peers and our offerings contain a significant level of differentiation such that the comparable pricing of our products cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor selling prices are on a standalone basis. As a result, we have not been able to establish selling price based on TPE.

BESP-  When we are unable to establish selling price using VSOE or TPE, we use BESP in our allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if the service was sold regularly on a standalone basis. As we have not been able to establish VSOE or TPE for CPM media placements, CPC media placements, and certain subscription products, we determine BESP for these deliverables based on the following:

 

   

The list price represents a component of the go-to-market strategy established by senior management. Our list prices are based on the features of the products offered. These features, which consist of the size and placement of the advertisements on our website, impact the list prices which vary depending on the specifications of the features. In addition, the list prices are impacted by market conditions, including the conditions of the real estate market and economy in general, and our competitive landscape; and

 

   

Analysis of our selling prices for these deliverables.

We limit the amount of allocable arrangement consideration to amounts that are fixed or determinable and that are not contingent on future performance or future deliverables. We regularly review BESP. Changes in assumptions or judgments or changes to the elements in the arrangement could cause a material increase or decrease in the amount of revenue that we report in a particular period.

We recognize the relative fair value of the products as they are delivered assuming all other revenue recognition criteria are met.

Allowances for Doubtful Accounts

We record a provision for doubtful accounts based on historical experience and a detailed assessment of the collectability of our accounts receivable. To assist with the estimate, our management considers certain factors such as historical experience, industry data, credit quality, age of accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. In cases where we become aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, we record a specific allowance against amounts due from the customer and thereby reduce the net recognized receivable to the amount we reasonably believe will be collected. There is significant judgment involved in estimating the allowance for doubtful accounts.

 

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Property and Equipment

Property and equipment is initially recorded at cost and depreciated using a straight-line method over the estimated useful lives of the assets. Maintenance and repair costs are charged to expense as incurred. The useful lives of our property and equipment are as follows:

 

Computer equipment

   2 to 3 years

Office equipment, furniture and fixtures

   3 years

Capitalized product development costs

   2 to 3 years

Network equipment

   5 years

Leasehold improvements

   Shorter of the lease term or 5 years

Depreciation expense of assets acquired through capital leases is included in depreciation and amortization expense in the statements of operations.

Market Leader Restructuring Costs

The main components of our restructuring plan relate to workforce reduction and contract termination costs. Workforce reduction charges are accrued when it is probable that the employees are entitled to the severance payments and the amounts can be reasonably estimated. One-time involuntary termination benefits are accrued when the plan of termination has been communicated to employees and certain other criteria are met. Contract termination costs are recognized as a liability when a contract is terminated in accordance with its terms, or at the cease-use date. If the amounts and timing of cash flows from restructuring activities are significantly different from what we have estimated, the actual amount of restructuring and other related charges could be materially different than those we have recorded.

Goodwill

Goodwill represents the excess of the aggregate purchase price paid over the fair value of net identifiable assets acquired. Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We have determined that we operate as one reporting unit and have selected December 1 as the date to perform our annual impairment test. The first step of the impairment test involves comparing the fair value of the reporting unit to its net book value, including goodwill. If the net book value exceeds its fair value, then we would perform the second step of the goodwill impairment test to determine the amount of the impairment loss. When performing the valuation of our goodwill, we make assumptions regarding our estimated future cash flows to determine the fair value of our business. If our estimates or related assumptions change in the future, we may be required to record impairment loss related to our goodwill. We have not recognized any goodwill impairments since our inception.

Impairment of Long-Lived Assets

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured first by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, an impairment loss would be recognized. When measuring the recoverability of these assets, we will make assumptions regarding our estimated future cash flows expected to be generated by the assets. If our estimates or related assumptions change in the future, we may be required to impair these assets. We have not recognized any impairment of long-lived assets to date.

Product Development Costs

Costs incurred in connection with the development of our marketplace are accounted for as follows: all costs incurred in the preliminary project and post-implementation stages are expensed as incurred. Certain costs incurred in the application development stage of a new product or projects to provide significant additional

 

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functionality to existing products are capitalized if certain criteria are met. Maintenance and enhancement costs are typically expensed as incurred. Such costs are amortized on a straight-line basis over the estimated useful lives of the related assets, which was estimated to be two years. Amortization expense is included in technology and development expense in the statements of operations.

Stock-Based Compensation

We recognize compensation costs related to stock-based awards granted to employees based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures. We measure the grant date fair value of stock options and stock appreciation rights using the Black-Scholes option-pricing model. Grant date fair value of restricted stock units equals the fair value of our common stock on the date of grant. These fair values are recognized on a straight-line basis over the requisite service period, which is the vesting period of the respective awards.

We account for equity awards issued to nonemployees based on the fair value of these awards, which is remeasured at the end of each reporting period. The resulting change in value, if any, is recognized in the statement of operations during the period the related services are rendered.

The fair value of the stock options granted during the years ended December 31, 2014, 2013 and 2012 was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions:

 

     Year Ended December 31,  
     2014      2013      2012  

Expected term (in years)

     5.3         5.5         5.5   

Expected volatility

     48%         52%         53%   

Risk-free interest rate

     1.7%         1.2%         0.9%   

Dividend rate

     0%         0%         0%   

The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions, including the expected term and the price volatility of the underlying stock, which determine the fair value of stock-based awards. These assumptions include:

 

   

Expected term . The expected term represents the period that the stock-based awards are expected to be outstanding. We estimate the expected term of the options and stock appreciation rights based on a study of publicly traded industry peer companies and the historical data on employee exercises and post-vesting employment termination behavior taking into account the contractual life of the stock-based awards;

 

   

Expected volatility . The expected volatility is derived from the historical stock volatilities of several comparable publicly listed peers over a period approximately equal to the expected term of the stock-based awards. We use this method because we have limited information on the volatility of our common stock because of our short trading history. When making the selections of our comparable industry peers to be used in the volatility calculation, we considered the size, operational and economic similarities to our principle business operations;

 

   

Risk-free interest rate . The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal the expected term of the stock-based awards; and

 

   

Expected dividend . The expected dividend is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.

In addition to the assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate to calculate the stock-based compensation for our awards. Our forfeiture rate is based on an analysis of our actual forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on

 

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actual forfeiture experience, analysis of employee turnover, and other factors. Quarterly changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in our financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in our financial statements.

We will continue to use judgment in evaluating the expected volatility, expected terms, and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to the estimates of our expected volatility, expected terms, and forfeiture rates, which could materially impact our future stock-based compensation expense.

Business Combination

We recognize identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill on the acquisition date is measured as the excess of consideration transferred over the net fair value of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that we identify adjustments to the preliminary purchase price allocation. Upon the conclusion of the measurement period or final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.

Purchased Intangible Assets

Purchased intangible assets with a determinable economic life are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful life of each asset on a straight-line basis. The useful lives of the purchased intangible assets are as follows (in years):

 

Enterprise relationships

     10 years   

Premium users

     5 years   

Existing technology

     7 years   

Trade names

     10 years   

Home/MLS data feeds

     10 years   

Purchased intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured first by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, an impairment loss would be recognized when the carrying amount of the asset exceeds the fair value of the asset.

Income Taxes

We account for our income taxes in accordance with the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Management must make assumptions, judgments, and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities, as well as any valuation allowance to be recorded against a deferred tax asset.

 

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Our assumptions, judgments, and estimates relative to the current provision for income taxes take into account current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits conducted by domestic tax authorities. We have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities. Although we believe our assumptions, judgments, and estimates are reasonable, changes in tax laws or our interpretation of tax laws, and the resolution of potential tax audits could significantly impact the amounts provided for income taxes in our financial statements.

Our assumptions, judgments, and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income, such as income from operations or capital gains income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments, and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments, and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, thus materially impacting our financial position and results of operations.

Since inception, we have incurred operating losses, and accordingly, we have generally not recorded significant provisions for income taxes for any of the periods presented. We generally do not expect any significant changes until we are no longer incurring losses. However, in the three months ended September 30, 2013, we recorded a discrete, one-time benefit of approximately $8 million associated with the acquisition of Market Leader which enabled us to recognize a portion of our deferred tax assets.

During the year ended December 31, 2013, we completed an analysis of certain research expenditures attributable to the legacy Trulia business to determine whether, and to what extent, federal and state research credits could be claimed and carried forward from inception through 2013. As a result of that analysis, we claimed research and development credits of approximately $2.9 million and $2.5 million, for federal and state purposes, respectively. These credits have been presented in Note 14 of our audited financial statements included elsewhere in this Annual Report on Form 10-K as an increase to deferred tax assets for the year ended December 31, 2013 but have also resulted in a corresponding increase to our valuation allowance. The claim therefore had no net impact to income tax expense. The federal credits will begin to expire in 2025 and the state credits can be carried forward indefinitely.

At December 31, 2014, we had approximately $192.2 million of federal net operating loss and $152.5 million of state net operating loss carryforwards available to reduce future taxable income, which will begin to expire in 2025 and 2015, respectively. Included in the above net operating loss carryforwards are $59 million and $45.7 million of federal and state net operating loss carryforwards, respectively, associated with a windfall tax benefit that will be recorded as additional paid in capital when realized.

Segment Information

We have one reportable segment. Our reportable segment has been identified based on how our chief operating decision-maker manages our business, makes operating decisions and evaluates operating performance. The chief executive officer acts as the chief operating decision-maker and reviews financial and operational information on an entity-wide basis.

Recently Issued and Adopted Accounting Pronouncements

In November 2014, the Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Update No. 2014-17, “Business Combinations (Topic 805),” (“ASU 2014-17”). ASU 2014-17 provides an acquired entity an option to apply pushdown accounting in its separate financial statements when a change in control occurs. The acquired entity may make this election in the subsequent period, and that will constitute a change in accounting principle. If pushdown accounting option is elected for a specific change in control event, that election is irrevocable. This guidance is effective as of November 18, 2014. Adoption of this guidance has no impact on our financial position, results of operations or cash flows in the current or future periods.

 

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In May 2014, the FASB issued the Accounting Standards Update No. 2014-09, “ Revenue from Contracts with Customers, ” (“ASU 2014-09”). ASU 2014-09 requires entities to recognize revenue for promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange. Additionally, entities should have sufficient disclosures about nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. We expect to adopt this guidance on January 1, 2017. We are in the process of assessing the impact on our financial position, results of operations and cash flows from the adoption of this guidance.

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, “ Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists, ” (“ASU 2013-11”). ASU 2013-11 requires entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when settlement in this manner is available under the tax law. This guidance is effective for interim and annual reporting periods beginning after December 15, 2013, with earlier adoption permitted, and may be applied prospectively or retrospectively. We adopted this guidance on January 1, 2014. Adoption of this guidance has no impact on our financial position, results of operations or cash flows in the current or future periods.

In February 2013, the FASB issued Accounting Standards Update No. 2013-02, “ Comprehensive Income,” (“ASU 2013-02”). ASU 2013-02 requires entities to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income. For other amounts that are not required under US GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under US GAAP that provide additional detail about those amounts. This pronouncement is effective for fiscal years beginning after December 15, 2012. We adopted this standard on January 1, 2013. During the years ended December 31, 2014, 2013, and 2012 we did not have any other comprehensive income and, therefore, the net loss and comprehensive loss was the same for all periods presented.

 

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Results of Operations

The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our total revenue:

 

     Year Ended December 31,  
     2014      2013      2012  
     (In thousands)  

Statement of Operations Data:

        

Revenue

   $ 251,937       $ 143,728       $ 68,085   

Cost and operating expenses: (1)

        

Cost of revenue (2)

     44,538         23,122         9,999   

Technology and development

     57,643         34,612         20,199   

Sales and marketing

     144,180         71,370         33,747   

General and administrative

     49,964         32,702         13,659   

Acquisition costs

     18,144         6,065         —     

Restructuring costs

     4,987         —           —     
  

 

 

    

 

 

    

 

 

 

Total cost and operating expenses

     319,456         167,871         77,604   
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (67,519      (24,143      (9,519

Other income (expense)

     (431      121         50   

Interest expense

     (7,386      (1,107      (1,016

Change in fair value of warrant liability

     —           —           (369

Loss on extinguishment of debt

     —           (141      —     
  

 

 

    

 

 

    

 

 

 

Loss before provision for income taxes

     (75,336      (25,270      (10,854

Income tax (provision) benefit

     (427      7,511         (67
  

 

 

    

 

 

    

 

 

 

Net loss attributable to common stockholders

   $ (75,763    $ (17,759    $ (10,921
  

 

 

    

 

 

    

 

 

 

 

(1)  

Compensation paid in stock was allocated as follows:

 

         Year Ended December 31,       
       2014      2013      2012     
       (In thousands)     
 

Cost of revenue

   $ 3,088       $ 718       $ 32      
 

Technology and development

     10,671         6,365         930      
 

Sales and marketing

     14,172         5,663         398      
 

General and administrative

     17,002         10,227         1,210      
 

Restructuring costs

     82        —          —       
    

 

 

    

 

 

    

 

 

    
 

Total compensation paid in stock

   $ 45,015       $ 22,973       $ 2,570      
    

 

 

    

 

 

    

 

 

    

(2)       Amortization of product development costs was included in technology and development as follows

   $   6,363       $ 2,660       $   1,108      
    

 

 

    

 

 

    

 

 

    

 

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     Year Ended December 31,  
     2014     2013     2012  

Percentage of Revenue**:

      

Revenue

           100           100             100

Cost and operating expenses:

      

Cost of revenue

     18        16        15   

Technology and development

     23        24        30   

Sales and marketing

     57        50        49   

General and administrative

     20        23        20   

Acquisition costs

     7        4        —    

Restructuring costs

     2        —         —    
  

 

 

   

 

 

   

 

 

 

Total cost and operating expenses

     127        117        114   
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (27     (17     (14

Other income (expense)

     *        *        *   

Interest expense

     (3     (1     (2

Change in fair value of warrant liability

     —         —         *   

Loss on extinguishment of debt

     —         *        —    
  

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (30     (18     (16

Income tax benefit

     *        5        —    
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

     (30 )%      (12 )%      (16 )% 
  

 

 

   

 

 

   

 

 

 

 

* Less than 0.5% of revenue.
** Certain numbers may not foot due to rounding.

Comparison of the Years Ended December 31, 2014, 2013, and 2012

Revenue

 

     Year Ended December 31,      2013 to 2014
% Change
    2012 to 2013
% Change
 
     2014      2013      2012       
     (In thousands)               

Revenue

   $ 251,937       $ 143,728       $ 68,085         75     111

2014 Compared to 2013

Revenue increased to $251.9 million in the year ended December 31, 2014 from $143.7 million in the year ended December 31, 2013, an increase of $108.2 million, or 75%. Marketplace revenue and Media revenue represented 83% and 17%, respectively, of total revenue in the year ended December 31, 2014, compared to 79% and 21%, respectively, of total revenue in the year ended December 31, 2013. The increase in total revenue was primarily attributable to the revenue from our acquisition of Market Leader in August 2013, the growth in our subscriber base, an increase in the average revenue per subscriber, the growth in our monthly unique visitors, and increased sales of our Trulia Mobile Ads and Trulia Seller Ads subscription products.

2013 Compared to 2012

Revenue increased to $143.7 million in the year ended December 31, 2013 from $68.1 million in the year ended December 31, 2012, an increase of $75.6 million, or 111%. Marketplace revenue and Media revenue represented 79% and 21%, respectively, of total revenue in the year ended December 31, 2013, compared to 70% and 30%, respectively, of total revenue in the year ended December 31, 2012. The increase in total revenue was attributable to the significant growth of our subscriber base, increase in average revenue per subscriber, as well as revenue from our acquisition of Market Leader in August 2013.

 

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During the years ended December 31, 2014, 2013, and 2012, we recognized Marketplace revenue and Media revenue as follows:

 

     Year Ended December 31,      2013 to 2014
% Change
    2012 to 2013
% Change
 
     2014      2013      2012       
     (In thousands)               

Marketplace revenue

   $ 210,335       $ 113,383       $ 47,805         86     137

Media revenue

     41,602         30,345         20,280         37     50
  

 

 

    

 

 

    

 

 

      

Total revenue

   $ 251,937       $ 143,728       $ 68,085         75     111
  

 

 

    

 

 

    

 

 

      

2014 Compared to 2013

Marketplace revenue increased to $210.3 million in the year ended December 31, 2014 from $113.4 million in the year ended December 31, 2013, an increase of $96.9 million, or 86%. This increase was primarily attributable to the full year of revenue in 2014 from our acquisition of Market Leader in August 2013, the growth in our subscriber base, the growth in sales of our subscription products for agents, Trulia Mobile Ads and Trulia Seller Ads , and an increase in the average revenue per subscriber.

Overall our subscriber base grew by 33% to approximately 79,300 subscribers as of December 31, 2014 from 59,700 subscribers as of December 31, 2013. However, we estimate that there was a 20% overlap of subscribers between Trulia and Market Leader for the year ended December 31, 2014. Our Trulia Mobile Ads and Trulia Seller Ads subscription products contributed to Marketplace revenue growth in the year ended December 31, 2014. The average monthly revenue per subscriber increased from $193 in the year ended December 31, 2013 to $209 in the year ended December 31, 2014, largely due to increased sales of these products.

Media revenue increased to $41.6 million in the year ended December 31, 2014 from $30.3 million in the year ended December 31, 2013, an increase of $11.3 million, or 37%. This increase was driven by the strong execution in our builder, credit, and display advertising areas, as well as continued rapid growth of our mobile monthly unique visitors and our monthly unique visitors.

2013 Compared to 2012

Marketplace revenue increased to $113.4 million in the year ended December 31, 2013 from $47.8 million in the year ended December 31, 2012, an increase of $65.6 million, or 137%. This was primarily attributable to the growth in the number of subscribers, our inventory expansion program, increased sales of our mobile subscription product, Trulia Mobile Ads , increased prices, as well as $21.2 million of revenue from our acquisition of Market Leader in August 2013.

Overall our subscriber base grew by 144% to approximately 59,700 subscribers as of December 31, 2013 from 24,443 subscribers as of December 31, 2012. The subscriber numbers as of December 31, 2013 reflect our estimate that there was a 20% overlap of subscribers between Trulia and Market Leader as of December 31, 2013. Our mobile subscription product for agents, Trulia Mobile Ads , which we launched in May 2012, contributed to Marketplace revenue growth in the year ended December 31, 2013. The average monthly revenue per subscriber for Trulia standalone increased from $156 in the year ended December 31, 2012 to $191 in the year ended December 31, 2013, largely due to increased sales of our Trulia Local Ads and Trulia Mobile Ads products in our high demand zip codes as a result of monetization improvement of these products.

Media revenue increased to $30.3 million in the year ended December 31, 2013 from $20.3 million in the year ended December 31, 2012, an increase of $10.1 million, or 50%. This increase was driven by strong year over year growth in our average monthly unique visitors, which increased from 23.1 million in the year ended December 31, 2012 to 38.8 million in the year ended December 31, 2013, an increase of 68%.

 

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Cost of Revenue

 

     Year Ended December 31,      2013 to 2014
% Change
    2012 to 2013
% Change
 
     2014      2013      2012       
     (In thousands)               

Cost of revenue

   $ 44,538       $ 23,122       $ 9,999         93     131

2014 Compared to 2013

Cost of revenue increased to $44.5 million in the year ended December 31, 2014 from $23.1 million in the year ended December 31, 2013, an increase of $21.4 million, or 93%. The increase was primarily due to a $12.4 million increase in labor and facilities related costs, including compensation paid in stock, largely as a result of a 60% increase in headcount in the year ended December 31, 2014, compared to the year ended December 31, 2013, partially as a result of the Market Leader acquisition. Also, $5.5 million of the increase was related to lead acquisition; $400,000 was related to the compensation paid in stock for the performance-based awards granted to certain employees in connection with the Market Leader acquisition; and $300,000 was related to the compensation paid in stock for equity awards granted to certain employees in connection with the Zillow Merger.

2013 Compared to 2012

Cost of revenue increased to $23.1 million in the year ended December 31, 2013 from $10.0 million in the year ended December 31, 2012, an increase of $13.1 million, or 131%. The increase was primarily due to a $2.7 million increase related to a new partnership arrangement that we entered into in the fourth quarter of 2012, and a $3.1 million increase in Trulia standalone labor and facilities related costs, including compensation paid in stock, largely as a result of a 23% increase in headcount in the year ended December 31, 2013. Market Leader’s contribution to cost of revenue was $6.0 million since August 21, 2013.

Technology and Development Expenses

 

     Year Ended December 31,      2013 to 2014
% Change
    2012 to 2013
% Change
 
     2014      2013      2012       
     (In thousands)               

Technology and development

   $ 57,643       $ 34,612       $ 20,199         67     71

2014 Compared to 2013

Technology and development expenses increased to $57.6 million in the year ended December 31, 2014 from $34.6 million in the year ended December 31, 2013, an increase of $23.0 million, or 67%. The increase was primarily due to a $14.5 million increase in labor and facilities related costs, including compensation paid in stock, largely as a result of a 44% increase in headcount in the year ended December 31, 2014, compared to the year ended December 31, 2013, partially as a result of the Market Leader acquisition. Also, $2.9 million of the increase was related to amortization of the intangible assets acquired in the Market Leader transaction; $746,000 was related to the compensation paid in stock for the performance-based awards granted to certain employees in connection with the Market Leader acquisition; and $3.0 million was related to the compensation paid in stock for equity awards granted to certain employees in connection with the Zillow Merger.

2013 Compared to 2012

Technology and development expenses increased to $34.6 million in the year ended December 31, 2013 from $20.2 million in the year ended December 31, 2012, an increase of $14.4 million, or 71%. The increase was primarily due to a $7.3 million increase in Trulia standalone labor and facilities related costs, including compensation paid in stock, largely as a result of a 34% increase in headcount in the year ended December 31,

 

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2013. Also, $1.3 million of the increase was related to stock-based compensation expense for the performance-based awards we granted to existing employees of Trulia and Market Leader in connection with the Market Leader acquisition. Market Leader’s contribution to technology and development expenses was $6.1 million since August 21, 2013.

Sales and Marketing Expenses

 

     Year Ended December 31,      2013 to 2014
% Change
    2012 to 2013
% Change
 
     2014      2013      2012       
     (In thousands)               

Sales and marketing

   $ 144,180       $ 71,370       $ 33,747         102     111

2014 Compared to 2013

Sales and marketing expenses increased to $144.2 million in the year ended December 31, 2014 from $71.4 million in the year ended December 31, 2013, an increase of $72.8 million, or 102%. The increase was primarily due to a $36.9 million increase in labor and facilities related costs, including compensation paid in stock, largely as a result of a 42% increase in headcount in the year ended December 31, 2014, compared to the year ended December 31, 2013, partially as a result of the Market Leader acquisition. Also, $25.9 million of the increase was related to our marketing and advertising activities, $4.1 million was related to the amortization of the intangible assets acquired in the Market Leader transaction, $2.4 million was related to the compensation paid in stock for the performance-based awards granted to certain employees in connection with the Market Leader acquisition, and $2.0 million was related to the compensation paid in stock for the equity awards granted to certain employees in connection with the Zillow Merger.

2013 Compared to 2012

Sales and marketing expenses increased to $71.4 million in the year ended December 31, 2013 from $33.7 million in the year ended December 31, 2012, an increase of $37.6 million, or 111%. The increase was primarily due to a $23.0 million increase in Trulia standalone labor and facilities related costs, including compensation paid in stock, largely as a result of a 34% increase in headcount in the year ended December 31, 2013. Also, $2.9 million of the increase was related to additional expenditures for marketing and advertising, and $0.7 million of the increase was related to stock-based compensation expense for the performance-based awards we granted to existing employees of Trulia and Market Leader in connection with the Market Leader acquisition. Market Leader’s contribution to sales and marketing expenses was $12.4 million since August 21, 2013.

General and Administrative Expenses

 

     Year Ended December 31,      2013 to 2014
% Change
    2012 to 2013
% Change
 
     2014      2013      2012       
     (In thousands)               

General and administrative

   $ 49,964       $ 32,702       $ 13,659         53     139

2014 Compared to 2013

General and administrative expenses increased to $50.0 million in the year ended December 31, 2014 from $32.7 million in the year ended December 31, 2013, an increase of $17.3 million, or 53%. The increase was primarily due to a $9.3 million increase in labor and facilities related costs, including stock-based compensation, largely as a result of a 24% increase in headcount in the year ended December 31, 2014, compared to the year ended December 31, 2013, partially as a result of the Market Leader acquisition. Also, $2.7 million of the increase was related to the amortization of the intangible assets acquired in the Market Leader transaction, $1.9 million was related to the compensation paid in stock for the performance-based awards granted to certain

 

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employees in connection with the Market Leader acquisition; and $1.6 million was related to the compensation paid in stock for the equity awards granted to certain employees in connection with the Zillow Merger.

2013 Compared to 2012

General and administrative expenses increased to $32.7 million in the year ended December 31, 2013 from $13.7 million in the year ended December 31, 2012, an increase of $19.0 million, or 139%. The increase was primarily due to an $8.8 million increase in Trulia standalone labor and facilities related costs, including compensation paid in stock, largely as a result of a 29% increase in headcount in the year ended December 31, 2013. Also, $2.3 million of the increase was related to stock-based compensation expense for the performance-based awards we granted to existing employees of Trulia and Market Leader in connection with the Market Leader acquisition. Market Leader’s contribution to general and administrative expenses was $5.9 million since August 21, 2013.

Acquisition Related Costs

 

     Year Ended December 31,      2013 to 2014
% Change
    2012 to 2013
% Change
 
     2014      2013      2012       
     (In thousands)               

Acquisition related costs

   $ 18,144       $ 6,065       $ —          199     100

In the year ended December 31, 2014, we incurred $18.1 million of expenses in connection with the Zillow Merger primarily related to legal and other professional fees, compared to the $6.1 million of expenses incurred in connection with our acquisition of Market Leader in the year ended December 31, 2013.

Restructuring Costs

 

     Year Ended December 31,      2013 to 2014
% Change
    2012 to 2013
% Change
 
       2014           2013          2012         
     (In thousands)               

Restructuring costs

   $ 4,987       $ —         $ —           100     —   

In the year ended December 31, 2014 we incurred $5.0 million of expenses in connection with the restructuring activities related to our ongoing integration of Market Leader described further in Note 12 of our audited consolidated financial statements included in this Annual Report on Form 10-K.

Interest Expense

 

     Year Ended December 31,      2013 to 2014
% Change
    2012 to 2013
% Change
 
     2014      2013      2012       
     (In thousands)               

Interest expense

   $ 7,386       $ 1,107       $ 1,016         567     9

2014 Compared to 2013

Interest expense increased to $7.4 million in the year ended December 31, 2014 from $1.1 million in the year ended December 31, 2013, an increase of $6.3 million, or 567%. The increase is primarily related to the 2020 Notes that we issued in December 2013, which accrue interest at 2.75% annually.

2013 Compared to 2012

Interest expense increased to $1.1 million in the year ended December 31, 2013 from $1.0 million in the year ended December 31, 2012, an increase of $0.1 million, or 9%. This increase is attributable to an incremental interest expense associated with our outstanding indebtedness.

 

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Change in Fair Value of Warrant Liability

 

     Year Ended December 31,     2013 to 2014
% Change
    2012 to 2013
% Change
 
       2014           2013          2012        
     (In thousands)              

Change in fair value of warrant liability

   $ —        $ —        $ (369     —        (100 )% 

2013 Compared to 2012

Change in fair value of warrant liability decreased to $0 in the year ended December 31, 2013 from $369,000 in the year ended December 31, 2012, a decrease of $369,000, or 100%. We issued these warrants when a new credit facility was established in September 2011. Upon the first public filing of our registration statement in August 2012, the anti-dilution provisions in these warrants terminated. As a result, the preferred stock warrant liability was remeasured to fair value and the remaining liability was reclassified to additional paid-in capital. Immediately prior to completion of our initial public offering in September 2012, the preferred stock converted to common stock and these warrants to purchase preferred stock converted into warrants to purchase common stock. Because these warrant no longer contained anti-dilution provisions, they were no longer remeasured to fair value on an ongoing basis. The warrants were net exercised in February 2013 and were no longer outstanding as of December 31, 2013.

 

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Quarterly Results of Operations

The following unaudited quarterly statements of operations data for each of the eight quarters as of the year ended December 31, 2014 have been prepared on a basis consistent with our audited consolidated financial statements included in this Annual Report on Form 10-K and include, in our opinion, all normal recurring adjustments necessary for the fair presentation of the financial information contained in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following quarterly financial data should be read in conjunction with our audited financial statements and the related notes included in Item 8 of this Annual Report on Form 10-K.

 

      Three Months Ended  
    Dec. 31,
2014
    Sept. 30,
2014
    June 30,
2014
    March 31,
2014
    Dec. 31,
2013
    Sept. 30,
2013
    June 30,
2013
    March 31,
2013
 
    (Unaudited, in thousands, except share and per share data)  

Statement of Operations Data:

               

Revenue

  $ 66,218      $ 67,144      $ 64,086      $ 54,489      $ 49,730      $ 40,283      $ 29,713      $ 24,002   

Cost and operating expenses: (1)

               

Cost of revenue (exclusive of amortization) (2)

    11,535        12,025        10,881        10,097        9,428        6,069        4,443        3,181   

Technology and development

    15,696        14,865        14,457        12,625        13,128        10,058        6,529        4,897   

Sales and marketing

    34,684        38,867        37,485        33,144        25,586        20,189        13,302        12,293   

General and administrative

    12,805        11,606        13,559        11,994        12,134        9,826        5,570        5,172   

Acquisition costs

    7,312        10,832        —         —         —         4,060        2,005        —    

Restructuring costs

    190        1,154        3,643        —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost and operating expenses

    82,222        89,349        80,025        67,860        60,276        50,202        31,849        25,543   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (16,004     (22,205     (15,939     (13,371     (10,546     (9,919     (2,136     (1,541

Other income (expense)

    (831     109        146        145        9        33        52        26   

Interest expense

    (1,857     (1,830     (1,872     (1,827     (451     (203     (217     (236

Loss on extinguishment of debt

    —         —         —         —         (141     —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

    (18,692     (23,926     (17,665     (15,053     (11,129     (10,089     (2,301     (1,751

Income tax (provision) benefit

    (64     (67     (198     (98     (17     7,869        (110     (231
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (18,756   $ (23,993   $ (17,863   $ (15,151   $ (11,146   $ (2,220   $ (2,411   $ (1,982
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

  $ (0.50   $ (0.64   $ (0.48   $ (0.41   $ (0.30   $ (0.06   $ (0.07   $ (0.07
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted

    38,001,317        37,540,527        37,068,035        36,726,178        37,270,375        34,557,842        32,150,829        28,427,025   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial Information:

               

Adjusted EBITDA (3)

  $ 15,611      $ 6,710      $ 4,611      $ 2,773      $ 7,683      $ 4,811      $ 3,403      $ 1,211   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1)  

Compensation paid in stock was allocated as follows:

 

    Three Months Ended  
    Dec. 31,
2014
    Sept. 30,
2014
    June 30,
2014
    March 31,
2014
    Dec. 31,
2013
    Sept. 30,
2013
    June 30,
2013
    March 31,
2013
 
    (Unaudited, in thousands)        

Cost of revenue

  $ 1,339      $ 1,129      $ 194      $ 426      $ 420      $ 200      $ 57      $ 41   

Technology and development

    4,312        2,179        2,336        1,844        3,337        2,039        578        411   

Sales and marketing

    5,209        2,391        3,079        3,493        3,315        1,526        485        337   

General and administrative

    5,000        3,476        4,401        4,125        5,233        3,525        866        603   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total compensation paid in stock related to vesting of stock based compensation.

    15,860        9,175        10,010        9,888        12,305        7,290        1,986        1,392   

Other compensation paid in stock:

               

Restructuring costs

    —         —         82        —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total compensation paid in stock.

  $ 15,860      $ 9,175      $ 10,092      $ 9,888      $ 12,305      $ 7,290      $ 1,986      $ 1,392   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(2)       Amortization of product development costs was included in technology and development as follows

  $ 120      $ 1,817      $ 3,263      $ 1,163      $ 1,505      $ 559      $ 397      $ 199   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
(3)  

See “Non-GAAP Financial Measures” for more information and a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States.

 

    Three Months Ended  
    Dec. 31,
2014
    Sept. 30,
2014
    June 30,
2014
    March 31,
2014
    Dec. 31,
2013
    Sept. 30,
2013
    June 30,
2013
    March 31,
2013
 
    (Unaudited, in thousands)  

Marketplace revenue (current definition)

  $ 55,513      $ 55,875      $ 53,196      $ 45,750      $ 42,152      $ 31,308      $ 21,964      $ 17,959   

Marketplace revenue (previous definition)

    —         —         —         —         40,000        29,422        20,933        17,357   

Media revenue (current definition)

    10,705        11,269        10,890        8,739        7,578        8,975        7,749        6,043   

Media revenue (previous definition)

    —         —         —         —         9,730        10,861        8,780        6,645   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

  $ 66,218      $ 67,144      $ 64,086      $ 54,489      $ 49,730      $ 40,283      $ 29,713      $ 24,002   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Dec. 31,
2014
    Sept. 30,
2014
    June 30,
2014
    March 31,
2014
    Dec. 31,
2013
    Sept. 30,
2013
    June 30,
2013
    March 31,
2013
 

Percentage of Revenue**:

               

Revenue

    100     100     100     100     100     100     100     100

Cost and operating expenses:

               

Cost of revenue

    17        18        17        19        19        15        15        13   

Technology and development

    24        22        23        23        26        25        22        20   

Sales and marketing

    52        58        58        61        51        50        45        51   

General and administrative

    19        17        21        22        24        24        19        22   

Acquisition costs

    11        16        —         —         —         10        6        —    

Restructuring costs

    *        2        6        —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost and operating expenses

    124        133        125        125        121        125        107        106   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (24     (33     (25     (25     (21     (25     (7     (6

Other income (expense)

    (1     *        *        *        *        *        *        *   

Interest expense

    (3     (3     (3     (3     (1     (1     (1     (1

Loss on extinguishment of debt

    —         —         —         —         *        —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

    (28     (36     (28     (28     (22     (25     (8     (7

Income tax (provision) benefit

    *        *        *        *        *        20        —         (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

    (28 )%      (36 )%      (28 )%      (28 )%      (22 )%      (6 )%      (8 )%      (8 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* Less than 0.5% of revenue
** Certain numbers may not foot due to rounding.

 

65


Table of Contents

Adjusted EBITDA

The following table presents a reconciliation of Adjusted EBITDA to our net loss, the most comparable GAAP measure, for each of the periods indicated below. See the section titled “Selected Financial and Other Data” for the detailed reconciliation to our net loss and for more information on our use and the limitations of Adjusted EBITDA as a measure of our financial performance.

 

    Three Months Ended  
    Dec. 31,
2014
    Sept. 30,
2014
    June 30,
2014
    March 31,
2014
    Dec. 31,
2013
    Sept. 30,
2013
    June 30,
2013
    March 31,
2013
 
    (Unaudited, in thousands)  

Net loss attributable to common stockholders

  $ (18,756   $ (23,993   $ (17,863   $ (15,151   $ (11,146   $ (2,220   $ (2,411   $ (1,982

Non-GAAP adjustments:

               

Other income (expense)

    831        (109     (146     (145     (9     (33     (52     (26

Interest expense

    1,857        1,830        1,872        1,827        451        203        217        236   

Loss on extinguishment of debt

    —         —         —         —         141        —         —         —    

Depreciation and amortization

    7,865        7,754        6,897        6,256        5,924        3,380        1,548