Homestore Reports Second Quarter 2004 Results; Record Gross Margin and Increased Earnings Before Interest, Depreciation and Amortization - EBITDA - Highlight Quarter

Business Wire, August 3, 2004

WESTLAKE VILLAGE, Calif. -- Homestore, Inc. (NASDAQ:HOMS), the leading provider of real estate media and technology solutions, today reported financial results for the second quarter ended June 30, 2004. Total revenue for the second quarter was $56.8 million, compared to $56.1 million in the first quarter of 2004 and $53.9 in the second quarter of 2003. The gross margin improved to 77 percent from 75 percent in the previous quarter and 72 percent in the second quarter of 2003.

Homestore also reported that the net loss for the quarter was $(4.3) million, or $(0.03) per share, compared to a net loss of $(5.1) million, or $(0.04) per share, for the first quarter of 2004 and $(91.7) million or $(0.78) per share for the second quarter of 2003. Results for the second quarter include litigation settlement charges of $2.2 million relating to the settlement of two legacy litigation matters. Earnings before interest, restructuring charges and certain other non-cash expenses, principally stock-based charges, depreciation, and amortization, referred to by the Company as "EBITDA," was $2.1 million in the second quarter, compared to $602,000 in the first quarter of 2004, and $(7.6) million in the second quarter of 2003. The improvement in EBITDA was primarily due to increased revenue, improved gross margin and reductions in the Company's operating expenses. The Company has reported EBITDA because management uses it to monitor and assess the Company's performance and believes it is helpful to investors in understanding the Company's business.

At June 30, 2004, Homestore had $35.2 million in cash and short-term investments available to fund operations. The cash balance reflects the impact of a $3.0 million payment made in April related to the settlement of the shareholder class action lawsuit.

"During the second quarter we made significant improvements in our products and services to help our customers become more profitable and productive," said Mike Long, Homestore's chief executive officer. "We're likewise pleased with our progress in delivering these valuable products and services on an increasingly profitable basis for our shareholders."

YEAR-OVER-YEAR QUARTERLY RESULTS

Revenue for the second quarter totaled $56.8 million, versus $53.9 million for the second quarter of 2003. The year-over-year increase in revenue is due to increases in the Company's Media Services segment of $2.1 million and Print segment of $1.0 million, offset by a $0.2 million decrease in revenue in the Software segment.

The net loss for the quarter was $(4.3) million, or $(0.03) per share, compared to a net loss of $(91.7) million, or $(0.78) per share, in the second quarter of 2003. The net loss for the second quarter of 2004 includes a litigation settlement charge of $2.2 million. The net loss for the second quarter of 2003 includes a litigation settlement charge of $63.6 million and an impairment charge of $12.2 million.

UPDATE ON SETTLEMENT OF SHAREHOLDER CLASS ACTION LAWSUIT

On May 14, 2004, the United States District Court entered final judgment approving the settlement agreement between Homestore and The California State Teachers' Retirement System (CalSTRS) related to the consolidated shareholder class action lawsuit. On June 10, 2004, an objector to the settlement filed an appeal. The Company expects that the settlement will ultimately be upheld on appeal, although there can be no assurance of this.

As a part of the settlement, Homestore agreed to pay $13.0 million in cash and issue 20.0 million new shares of common stock valued at $50.6 million as of August 12, 2003. In October 2003, Homestore placed $10.0 million in escrow upon preliminary approval by the U.S. District Court, and the final $3.0 million was put in escrow in April 2004. In May 2004, the Company issued the 20.0 million shares of common stock to counsel of the Plaintiff as trustee. The shares are reflected as issued and outstanding in the June 30, 2004 financial statements. Upon successful completion of the appeals process, the $13.0 million and 20.0 million shares of newly issued common stock will be distributed to the class by the Court. Additional information regarding the settlement agreement is included in documents Homestore files from time to time with the Securities and Exchange Commission.

CONFERENCE CALL

As previously announced, Homestore will host a conference call, which will be broadcast live over the Internet today, Tuesday, August 3, 2004, at 2:00 p.m. PDT (5:00 p.m. EDT). Chief Executive Officer, Mike Long, and Chief Financial Officer, Lew Belote, will discuss the Company's second quarter 2004 results. In order to participate in the call, investors should log on to http://ir.homestore.com and click on "Event Calendar." Windows Media Player software is required and is obtainable at no cost. Please connect to the above Web site ten minutes prior to the call to load any necessary audio software. A replay of the call will be available in the same section of the Company's Web site two hours after the end of the call. A telephone replay will also be available from 5:00 p.m. PDT (8:00 p.m. EDT) on August 3 until midnight on August 10 at 706-645-9291, conference code 8757241. For additional information regarding the Company's results, please go to the "SEC Filings" section at http://ir.homestore.com to view annual reports as filed with the Securities and Exchange Commission on Form 10-K. Homestore's Form 10-Q for the quarter ended June 30, 2004 is expected to be filed with the Securities and Exchange Commission on, or before, Monday, August 9, 2004.