Last year's booming housing market helped pump up 2005 profits at Kirkland-based HouseValues, but the company's forecast for the current year led to a 28 percent stock-market pummeling Wednesday.

HouseValues said Tuesday, after the markets had closed, that slower growth in its business from real-estate agents and heavy investment in new businesses would keep its 2006 results well below Wall Street's expectations.

Wall Street was quick to respond. HouseValues shares, already trading 33 percent below their July 2005 peak, dropped $3.79, or 28.1 percent, on Wednesday, closing at $9.71. That's the stock's lowest close since HouseValues went public in December 2004.

More than 3.3 million shares changed hands Wednesday, almost 10 times the three-month average volume.

HouseValues, which uses its popular Web sites for homebuyers and sellers to generate leads for its real customers — real-estate agents — had ridden the crest of the U.S. housing wave.

The 7-year-old company reported Tuesday that last year it had earned almost $15 million, or 54 cents a share — more than twice its 2004 profit; total revenues soared to $86.7 million.

Wall Street analysts had expected that growth to continue: The consensus forecast was for 69 cents a share in profit on $130 million in revenue.

But the company told analysts its core business, which is signing up real-estate agents as customers, was slowing. In the fourth quarter of 2005, HouseValues signed a net 100 new agents, compared with 2,000 in the third quarter and 1,200 in the fourth quarter of 2004.

In addition, monthly churn grew from 6.5 percent in the third quarter to 7.2 percent in the fourth quarter.

"While some of the slowdown ... is likely due to seasonal effects, the significant drop-off is likely the sign of a more pronounced slowing in the real-estate market," Piper Jaffray analyst Safa Rashtchy wrote in a note to clients.

HouseValues also said it planned to make "significant investments" in two new businesses: HomePages, a listings Web site with detailed neighborhood information, and The Loan Page, a competitive mortgage-bidding site that HouseValues acquired in November.

HouseValues projected it will earn 24 to 30 cents a share this year, on revenue between $105 million and $115 million. That includes an estimated 12 cents a share for the cost of stock-option compensation, which HouseValues, like other companies, will begin expensing this year.

Piper Jaffray and JPMorgan Securities, which both helped underwrite HouseValues' initial public offering, lowered their ratings on the stock.

"While we do believe HouseValues is making the right strategic move by investing in new initiatives, which should help to better diversify the business, the increased investments will weigh on results for most of 2006," Rashtchy noted.

Drew DeSilver: 206-464-3145

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