Homestore Stock Falls on Downgrade Inc. , which announced a major restructuring last week that included a 20 percent workforce reduction, was downgraded by Goldman, Sachs analysts today “in light of earnings growth concerns, segment analysis and execution risk.”

Homestore stock fell rapidly in the early going, and was down more than 14 percent or 86 cents to $5.03 at mid-day. The company’s 52-week high is $43; at one point in 1999 it traded for well over $100 a share.

The company, citing the events of Sept. 11 and the general decline of Internet advertising, said earlier this month that it expects to report a third-quarter pro forma loss of 1 to 6 cents a share on revenues of $114 million to $118 million. Analysts on average had been looking for a profit of 16 cents a share.

GS expressed concerns that the company is overly dependent on ad revenues; that a substantial housing turnover slowdown may be materializing; and that real estate-related online advertising, is “now likely to be depressed.”

Consequently the stock of the Westlake Village, Calif.-based company was downgraded to MO – market outperform — from RL, or the Goldman, Sachs Recommended List.

Homestore, once much-beloved of Wall Street because of its market dominance, made the GS Recommended List last March when analysts cited its consistent growth, strong fundamentals and position as “the clear market leader.”

In February Homestore completed its acquisition of Cendant Corp.’s operation in a stock deal valued at approximately $790 million.

The company was able to avoid the dot-com blues until recently in part because of its record of growth (six consecutive quarters in which it exceeded estimates) and because the real estate market itself, until the events of Sept. 11, was one of the last strong pillars of a trembling economy.

But now, GS said in an advisory to clients,’s “advertising shortfall was significantly greater than all of our covered companies, indicating that this ad segment was not as depressed as others prior to Sept. 11; thus the impact on the outlook is more pronounced and will put additional pressure” on achieving earnings growth.”

“With the primary driver of profitability (the ad business) under pressure and the core subscription business still unprofitable and facing a difficult housing environment, it seems unlikely that will be able to report EBITDA growth in 2002, Goldman Sachs said.

Still, GS is more sanguine for the long term, saying: “We continue to believe that the online real estate-related opportunity is large and, with the proper execution, will emerge from the current period with a stronger leadership position.

Homestore said last week it plans to establish two primary operating groups — the Real Estate Services Group and the Retail and Customer Services Group — as well as a Corporate Development Group to handle mergers and acquisitions, business development, corporate partnerships and advertising sales.

The Real Estate Services Group will operate,, Apartments & Rentals units, and other real estate business units. The Retail and Consumer Services Group will operate the company’s iPlace, Welcome Wagon and Local Online businesses.

The company will report its third-quarter earnings after the bell on Thursday.

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