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TRLA > SEC Filings for TRLA > Form 10-Q on 13-Nov-2012All Recent SEC Filings

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Form 10-Q for TRULIA, INC.


13-Nov-2012

Quarterly Report


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 condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission on September 19, 2012 (the "Prospectus"). 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 may 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 Quarterly Report on Form 10-Q and in our Prospectus.

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 offer products that provide real estate professionals with access to transaction-ready consumers and help them enhance their online presence.

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. In the nine months ended September 30, 2012, we had 23.0 million monthly unique visitors, and as of September 30, 2012, we had 22,763 paying subscribers in our marketplace. Our large, continually refreshed, and searchable database contains more than 112 million properties, including 4.2 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, including consumers, local enthusiasts, and real estate professionals. With more than 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, and Kindle applications and also provide tailored mobile experiences, such as GPS-based search.

We offer our products free to consumers. We deliver the "inside scoop" on homes, neighborhoods, and real estate professionals in an intuitive and engaging way, helping consumers make more informed housing decisions. For real estate professionals, we offer a suite of free and subscription products to promote themselves and their listings online, and to connect with consumers searching for homes. 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.

We generate revenue primarily from sales of subscription marketing products that we offer to real estate professionals. Our Trulia Pro product allows real estate professionals to receive prominent placement of their listings in our search results. With our Trulia Local Ads and Trulia Mobile Ads products, real estate professionals can purchase local advertising on our website and mobile applications, respectively, by locale and by share of a given market. We also generate revenue from display advertising we sell to leading real estate advertisers and consumer brands seeking to reach our attractive audience. Pricing for our display advertisements is based on advertisement size and position on our web page, and fees are based on a per-impression or on a per-click 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, and growing our revenue. We have invested heavily to build our robust data and analytics platform, and continue to spend significantly on technology and engineering.

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 subscribers in our marketplace, increase the value of our advertising products, 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.


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Key Business Metrics

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

Monthly Unique Visitors. We count a unique visitor the first time a computer or mobile device with a unique IP address accesses our website or our mobile applications during a calendar month. If an individual accesses our website 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. 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. 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 nine months ended September 30, 2012, the number of monthly unique visitors increased to 23.0 million from 14.5 million in the nine months ended September 30, 2011, a 59% increase. We attribute the growth in our monthly unique visitors principally to our increasing brand awareness, 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 our website or our mobile 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 the 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 nine months ended September 30, 2012, the number of mobile monthly unique visitors increased to 4.9 million from 1.9 million in the nine months ended September 30, 2011, a 155% increase. We attribute this growth to 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 our website or mobile applications, such as Q&A discussions, blogs, blog comments, user votes, recommendations, and neighborhood ratings and reviews. We view the changes in the volume of new contributions to user-generated content as a key indicator of our user engagement and the strength of our community. In the nine months ended September 30, 2012, new contributions to user-generated content increased by 2,240,257 contributions, and we now have over 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 our marketplace. 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. 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 September 30, 2012, we had 22,763 total subscribers, a 34% increase from 16,935 total subscribers as of September 30, 2011. We attribute this growth to our increasing sales and marketing efforts, principally from the launch and growth of our inside sales team, as well as growth in monthly unique visitors.

Average Monthly Revenue per Subscriber. We calculate our average monthly revenue per subscriber by dividing the revenue generated from subscriptions 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. Our average monthly revenue per subscriber is a key indicator of our ability to monetize our marketplace, and we monitor changes in this metric to measure the effectiveness of our marketplace monetization strategy. In the nine months ended September 30, 2012, our average monthly revenue per subscriber increased to $148 from $97 in the nine months ended September 30, 2011, a 53% increase. We have been able to increase our average monthly revenue per subscriber by launching new products to sell to existing customers, 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 subscription products-those where inventory is sold out and wait lists to purchase our products exist-average monthly revenue per subscriber is higher than in markets with less demand for our products.


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Our key business metrics are as follows:

                                                                Nine Months Ended
                                                                  September 30,
                                                                2012          2011
 Monthly unique visitors (in thousands)                          22,989       14,464
 Mobile monthly unique visitors (in thousands)                    4,860        1,904
 New contributions to user-generated content (in thousands)       2,240        1,549
 Total subscribers (at period end)                               22,763       16,935
 Average monthly revenue per subscriber ($)                         148           97

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, depreciation and amortization, change in the fair value of our warrant liability, and stock-based compensation. 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 Quarterly Report on Form 10-Q 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 stock warrant, and the impact of stock-based compensation expense. 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.


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

                                                    Three Months Ended             Nine Months Ended
                                                      September 30,                  September 30,
                                                   2012            2011           2012           2011
                                                                     (In thousands)
Net loss attributable to common stockholders     $  (1,689 )     $ (1,495 )     $ (9,329 )     $ (4,101 )
Non-GAAP adjustments:
Interest income                                         (3 )           (4 )          (10 )          (10 )
Interest expense                                       268             94            759            135
Depreciation and amortization                          886            701          2,472          1,721
Change in fair value of warrant liability               46             -             369             -
Stock-based compensation                               793            304          1,809          1,141

Adjusted EBITDA                                  $     301       $   (400 )     $ (3,930 )     $ (1,114 )

Critical Accounting Polices and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or 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 in the Prospectus, which include estimates for revenue recognition, allowance for doubtful accounts, goodwill, impairment of long-lived assets, product development costs, stock-based compensation, and income taxes, are critical to understanding our historical and future performance, as these policies relate to the critical areas involving our judgments and estimates, and as such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and accompanying notes included in the Prospectus. There have been no material changes to the accounting policies described in the Prospectus.

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:



                                                   Three Months Ended             Nine Months Ended
                                                     September 30,                  September 30,
                                                  2012            2011           2012           2011
                                                                    (In thousands)
Statement of Operations Data:
Revenue                                         $  18,544       $ 10,533       $ 47,531       $ 26,781
Cost and operating expenses: (1)
Cost of revenue (2)                                 2,615          1,642          7,308          4,001
Technology and development                          5,235          3,626         15,140         10,277
Sales and marketing                                 8,441          5,010         23,638         12,288
General and administrative                          3,631          1,660          9,656          4,191

Total cost and operating expenses                  19,922         11,938         55,742         30,757
Loss from operations                               (1,378 )       (1,405 )       (8,211 )       (3,976 )
Interest income                                         3              4             10             10
Interest expense                                     (268 )          (94 )         (759 )         (135 )
Change in fair value of warrant liability             (46 )           -            (369 )           -

Loss before provision for income taxes             (1,689 )       (1,495 )       (9,329 )       (4,101 )
Provision for income taxes                             -              -              -              -

Net loss attributable to common stockholders    $  (1,689 )     $ (1,495 )     $ (9,329 )     $ (4,101 )


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(1)    Stock-based compensation was allocated as
       follows:

                                                          Three Months Ended             Nine Months Ended
                                                             September 30,                 September 30,
                                                         2012            2011            2012          2011
                                                                           (In thousands)
       Cost of revenue                                 $       6       $       4      $       20      $     7
       Technology and development                            253             160             629          319
       Sales and marketing                                    97              44             276          136
       General and administrative                            437              96             884          679

       Total stock-based compensation                  $     793       $     304      $    1,809      $ 1,141


(2)    Amortization of product development costs
       was included in technology and development
       as follows:                                     $     266       $     183      $      748      $   447

                                                    Three Months Ended               Nine Months Ended
                                                      September 30,                    September 30,
                                                   2012             2011            2012             2011
Percentage of Revenue:
Revenue                                               100 %           100 %            100 %           100 %
Cost and operating expenses:
Cost of revenue                                        14              16               15              15
Technology and development                             28              34               32              38
Sales and marketing                                    46              48               50              46
General and administrative                             20              16               20              16

Total cost and operating expenses                     107             113              117             115
Loss from operations                                   (7 )           (13 )            (17 )           (15 )
Interest income                                         *               *                *               *
Interest expense                                       (1 )            (1 )             (2 )            (1 )
Change in fair value of warrant liability               *              -                (1 )            -

Loss before provision for income taxes                 (9 )           (14 )            (20 )           (15 )
Provision for income taxes                             -               -                -               -

Net loss attributable to common stockholders           (9 )%          (14 )%           (20 )%          (15 )%

* Less than 0.5% of revenue.


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Comparison of the Three Months Ended September 30, 2012 and 2011

Revenue

Three Months Ended
September 30, 2011 to 2012
2012 2011 % Change
(In thousands)

Revenue $ 18,544 $ 10,533 76 %

Revenue increased to $18.5 million in the three months ended September 30, 2012 from $10.5 million in the three months ended September 30, 2011, an increase of $8.0 million, or 76%. Marketplace revenue and media revenue represented 64% and 36%, respectively, of total revenue in the three months ended September 30, 2012, compared to 59% and 41%, respectively, of total revenue in the three months ended September 30, 2011. The continued increase in marketplace revenue as a percentage of total revenue was the result of significant growth in our subscription business. Increases in total subscribers and average monthly revenue per subscriber outpaced the growth of our advertising business.

During the three months ended September 30, 2012 and 2011, we recognized marketplace revenue and media revenue as follows:

                                     Three Months Ended
                                        September 30,          2011 to 2012
                                      2012          2011         % Change
                                       (In thousands)
             Marketplace revenue   $   11,890     $  6,236                91 %
             Media revenue         $    6,654     $  4,297                55 %

             Total revenue         $   18,544     $ 10,533                76 %

Marketplace revenue increased to $11.9 million in the three months ended September 30, 2012 from $6.2 million in the three months ended September 30, 2011, an increase of $5.7 million, or 91%. The increase in marketplace revenue was primarily attributable to the 45% increase in the average monthly revenue per subscriber to $154 in the three months ended September 30, 2012 from $106 in the three months ended September 30, 2011, which resulted in a $3.2 million increase in marketplace revenue during the three months ended September 30, 2012 when compared to the three months ended September 30, 2011. The increase in marketplace revenue was also partly attributable to the 34% increase in the number of total subscribers to 22,763 as of September 30, 2012 from 16,935 as of September 30, 2011, which resulted in a $2.0 million increase in marketplace revenue during the three months ended September 30, 2012 when compared to the three months ended September 30, 2011.

Media revenue increased to $6.7 million in the three months ended September 30, 2012 from $4.3 million in the three months ended September 30, 2011, an increase of $2.4 million, or 55%. This increase in media revenue was primarily attributable to the increase in the number of impressions sold on a CPM or CPC basis which was primarily driven by an increase


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in overall advertiser demand for our display advertising inventory as we recognized an increase in monthly unique visitors to 24.9 million in the three months ended September 30, 2012 from 16.6 million in the three months ended September 30, 2011, a 50% increase.

Cost of Revenue

Three Months Ended
September 30, 2011 to 2012
2012 2011 % Change
(In thousands)

Cost of revenue $ 2,615 $ 1,642 59 %

Cost of revenue increased to $2.6 million in the three months ended September 30, 2012 from $1.6 million in the three months ended September 30, 2011, an increase of $1.0 million, or 59%. This increase in cost of revenue was primarily the result of a $0.5 million increase in headcount and related . . .

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