Stuart H. wolff turned a floundering realty web site into a company with annual sales of $178 million Stuart H. Wolff laughs as he tells a visitor that he engineered the first Internet turnaround. He is only half joking. Less than four years ago, the chairman and chief executive officer of Homestore.com took a failing Web site run by a realtors’ association and turned it into the premier online real estate company with annual sales of $178 million. Homestore.com provides listings on homes for sale and apartment rentals, along with a variety of information on home improvement, financing, decorating and e-commerce. But the key ingredient to the company’s growth has been its ability to lock in exclusive relationships with realtors and realty boards, deals that resulted in some 1.3 million home postings on the Web site. With more listings than any of its competitors, Homestore.com has been able to attract the lion’s share of visitors to its site. The strategy has also helped the Thousand Oaks-based firm improve its cash flow. Considered on a pro-forma basis (excluding certain charges ordinarily included in net income computations), Homestore.com landed in the black for the first time in its history in the third quarter ending Sept. 30, with a net profit of $554,000, or 1 cent a share, according to Wolff. Not that Homestore.com is out of the woods yet. Far from it. The tech wreck on Wall Street and a Justice Department investigation launched last spring into Homestore.com’s business practices could sharply curtail the company’s further progress. When Homestore.com’s stock price was hovering at $130 a share, there was no shortage of companies willing to trade exclusive rights to their listings for shares. With stock prices now in the mid-$20 range, that may no longer be the case when many of those deals come up for renewal. At the same time, the Justice Department has launched an investigation into the company to determine whether the exclusivity deals with realty companies amount to unfair competition, although no charges have been brought against Homestore.com. Wolff expresses little concern over the latest developments. The future of Homestore.com, he says, is not in its exclusive relationships with realtors, or even its listings. Rather, he says, the company’s destiny is tied to its ability to develop the kind of sophisticated technology that will take Homestore.com from a Web site where buyers can peruse homes for sale, and real estate agents can advertise their services, to a place where real estate transactions everything from finding to buying a home can take place electronically. Question: How do you think recent events on Nasdaq will affect your business plan? Answer: Anytime you have any kind of relationship, if it’s totally based on economics, it’s a pretty lame relationship. Hopefully, (the listing arrangement) is a relationship that is beneficial to (realtors). I think there’s a misperception that we’re a company built on exclusive agreements. I think people are selling us short if they think we’re a company based on exclusive agreements. Value is created by people. Ultimately, you’re betting on horses. You either believe in the management team or you don’t. Q: How has the Justice Department probe into your business practices affected the company and how will it change your business model if you can’t continue to build these exclusive listing arrangements? A: First of all, we don’t think we’ve done anything wrong, and they haven’t brought any charges, so we’re not in the Microsoft situation. To my understanding, Cisco, Yahoo, a lot of companies have been (subjects of investigations like ours). So we’re totally comfortable with that. We’re also confident we don’t have any problem, so changing our business model is not part of our thinking. Q: Still, isn’t the key to the company’s success the fact that you have been able to garner more listings than competitors? And isn’t that situation in jeopardy with the Justice Department investigation and the decline in the stock price? A: That was back in ’97. As an example, all the technology (we are currently developing) has nothing to do with listing new homes. There’s a lot of great people involved in various aspects of our company. If we’re a one-trick pony, shoot us. You won’t hear me making excuses around DOJ or the stock price. Q: Why is the recent quarter’s result with respect to your pro-forma earnings an accomplishment, given that the company continued to lose money for the period on a net basis? A: Pro forma is a reflection of how business is performing. It means we took in more than we paid out. A lot of us had cheap stock options and it gets amortized over a couple of years and shows up on the earnings (contributing to the net loss), but that’s not truly reflective of the performance of the company. Q: Give us your assessment of the company’s recent performance. A: I think it was a great quarter. I think we’ve had five great public quarters, but to be a great company we have to do it for another 10 or 20 years. General Electric has been doing it for 100 years. Sun, Oracle, Cisco, they have all been doing it for years. We’re in the category of, we just made the playoffs. But we’re not a three-time Super Bowl champion. A return champion is a real champion. Q: What are the challenges to becoming a return champion? A: As you have success, your competition becomes more focused. You have internal issues, ego issues. When you’re in a garage building up, everyone is so focused on getting out the public offering. Most companies get through the IPO, but they don’t have the sustaining power. We did that. Now we’re in the playoffs. We have to do what we (already) did three times in a row. We need five or 10 years of that, and it’s damned hard to do. Q: How do you plan to build the company from here? A: We’re building out a suite of applications for (realtors and agents) and that continues to be a big focus for 2001. The real focus in ’01 is to become a technology company and build technical products. In Silicon Valley, you can point to Sun and other companies (that have achieved a high level of technology.) We would like to be one of the first great technology companies in Los Angeles. There’s a lot of commitment to media here, but there isn’t as much commitment to great technology. If we can do that, I think this company can get to the next level. Q: Will the focus on developing your technology require another large capital infusion? A: A lot of the heavy lifting on the cost side is in place. We have a lot of servers. We’re one of Dell’s biggest customers. Q: Why did you decide to go to work for TCI without any pay? A: I’ve always done what I wanted to do. Follow your passion. Follow your dreams. I do what I like to do. I wanted to be at TCI. I thought they were changing the world. I saw the beginning of the Internet and I wanted to be part of that. Q: A number of your initial investors seem to have cashed out in October. Does that represent a loss of faith in the company? A: The (initial venture capital companies), except Kleiner Perkins Caufield & Byers, are gone. They frankly weren’t adding any value and, in some cases, I was happy to have some of them move on. You have a transition in shareholder base as a company moves, so you’re constantly changing your shareholder base. My goal is to get to be a large cap company (with a different investor base).
