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Homestore.com Builds On Market Dominance

Like Internet auction giant eBay, online real estate company Homestore.com has quickly built a strong and uniquely defensible market position.

And like eBay, HOMS can now point to a string of profitable quarters and a bullish outlook for the rest of the year. The company's first-quarter earnings report, released after the market closed on Wednesday, shows net profits of $4 million, or 4 cents per share. It is the third straight quarter of cash profitability for Homestore.com, and results topped Wall Street Q1 forecasts of break-even.

Excluding acquisition charges and other costs, HOMS had a Q1 net loss of $67.1 million, or 71 cents per share, more than double the net loss of $29.2 million, or 39 cents per share, in the year-ago quarter.

In a period when many Internet companies are reporting declining revenues, Homestore's pro forma revenue more than doubled from the year-ago quarter to $118.4 million, while sequential quarterly pro forma revenue growth was 11%.

Equally impressive, Homestore.com's gross profit margin continues to increase. The pro forma gross profit margin in Q1 was 73.5%, compared to 64.7% in the year-ago quarter and 71.7% in the fourth quarter of 2000.

Thanks to its partnership with the National Association of Realtors and its aggressive acquisition strategy, Homestore.com now has a dominating share -- more than 90% -- of the online real estate market. In February, HOMS completed its purchase of rival move.com from Cendant.

While HOMS does rely on advertising revenue, subscription fees from real estate professionals now generate nearly two-thirds of pro forma revenues. Thanks in large part to the move.com purchase, the number of professional subscriptions nearly doubled in Q1 to 359,000 from 184,000 in the fourth quarter. Homestore.com's subscriptional renewal rate remained at a healthy 70%.

For the full year, HOMS said it forecasts pro forma revenues of $500 million -- up about 12% from earlier projections -- and pro forma earnings of 53 cents per share. The company had expected EPS of 45 cents.

Despite dropping in price over the last four trading sessions, HOMS shares are up 42.8% in the year to date, closing Wednesday at $28.73.