So, Who’s Going to Buy Zillow Stock?

Spencer Rascoff, Chief Executive Officer, ZillowAs you probably know, Zillow will be going public with an IPO later this year. They made a few headlines today (TechCrunch, GeekWire, TechFlash) with an annoucement that their initial target stock price will be $16-$18, putting the company’s valuation at $485 million.

So here’s a weekend conversation starter for you: Will you be buying Zillow when they hit the public markets? Why or why not? What do you think of the $485 million valuation? Does Zillow provide enough value to become a viable long-term company? What will they look like in 5 years?

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1
    Toad37 says:

    Most likely be 2 bucks or less in 5 years, but who knows. Where is their revenue, ads?

  2. 2

    Hard to say about Zillow’s prospects as a stock. I’m not buying any.
    If they’re as accurate at projecting quarterly earnings as they are at putting values on houses: All bets are off. Just like they say with their zestimates ” For amusement purposes only.”

  3. 3
    Blurtman says:

    I think the Fed will pick up a few billion of shares.

  4. 4
    ray pepper says:

    Zillow has great traffic but has NOT made a profit in 3+ years…With the recent increase in IPO price I believe we will see the initials pops and just maybe great for a TRADE but until they begin to have a track record of profitability you will find they will be UNDER 10 within 6 months.

  5. 5
    David Losh says:

    I like Zillow.

    The entire idea of internet tech Real Estate was to establish a National Listing Service that was consumer driven.

    many here complain about the Multiple Listing Services hoarding the “data.” Many Real Estate professionals would like to distance themselves from organizations, or Brokerages, that monoplolize the consumers interest.

    Zillow is the only online community that has half a chance of becoming a national listing site for consumers.

  6. 6
    David Losh says:

    RE: David Losh @ 5

    I see Ray slipped in there while I was writing, and let me clarify that redfin could have become a site of national interest. The ownership made grave, serious, missteps in credibility. In my opinion redfin needs to change ownership, and mellow, for a cooling off period before it could be taken seriously as an investment.

    You can talk about zestimates all you want, but they are still a part of the national data scene, and Zillow did attract a mortgage originator following.

    There is something for every one to hate about Zillow, and a lot to like.

  7. 7
    Scotsman says:

    Might be a good one to short after the initial pop. But why would I buy and hold stock in a company that has never even been close to getting the valuation on my house right? They’re currently off by 30% at a minimum.

  8. 8
    WestSideBilly says:

    I’m with Scotsman, wait til it hits 20 and short it. No revenue, no profitability.

  9. 9
    Feedback says:

    I’ll buy Zillow when I know what they do.

    What does Zillow do? Do they sell real estate? Do they buy real estate? What service do they provide that creates value?

  10. 10
    Hugh Dominic says:

    Zillow at 500m is a joke. 150m would be generous.

  11. 11
    One Eyed Man says:

    Here’s where you can find the Zillow S-1 (but frankly, why would you want to).

    The S-1 link is also in the articles linked by The Tim.

    Scroll thru and check out the financials if you want to see the growth in the meager revenues, the shrinking quarterly losses, and the names of the former Expedia guys, the apparent money men and the former Oracle CEO, who all will be able to dump some of their stock holdings and get some money out once the lock up period expires.

    The only thing less impressive to me than the financials is the business model. I hate companies that advertise agents for a fee and I find it hard to believe the subscription really generates enough new revenue for the agents to justify the subscription. But thats just my personal prejudice. I have no data and no anecdotal evidence related to the Zillow Premier Agent program. I’d definitely want to know what percentage of agents resubscribe once their subscription ends.

    If you were really considering investing it might be interesting to try and make up a pro-forma financial to figure out how many subscriptions they would have to get to generate enough revenue for them to have a PE of approximately 15 at the estimated offering price.

    They basically seem to be claiming they will make money off their “Premier Agent” program although they also have a mortgage broker program and sell other ads. Apparently agents pay Zillow money to paste the agents face and data on the page with real estate info for the zip code the agent has subscribed for. So why is this one better than all the other POS agent add pages that promise lead generation? Is Zillow’s real estate information that great? Are any of the agents out their Zillow Premier Agents? Does the program generate real leads and revenues for those who subscribe to it? The subscription base is growing and so is the revenue although they are still losing money.

    Here’s what the S-1 says about how Zillow generates its revenue.

    “Marketplace Revenues. Marketplace revenues consist of subscriptions sold to real estate agents under our Premier Agent program and CPC advertising related to our Zillow Mortgage Marketplace sold to mortgage lenders.
    Our Premier Agent program allows local real estate agents to establish a persistent online and mobile presence on Zillow in the zip codes they serve. We present contact information for each Premier Agent alongside home profiles and home listings within the agent’s zip code, assisting consumers in evaluating and selecting the real estate agent best suited for them. Pricing for our Premier Agent subscriptions varies by zip code. Subscription advertising revenues are recognized on a straight-line basis during the contractual period over which the advertising is delivered. Typical terms of our Premier Agent subscription contracts range from six to 12 months. Growth in our subscription advertising product is based on our ability to continue to attract agent subscribers and drive consumer traffic to those agents on our website and through our mobile applications.
    In Zillow Mortgage Marketplace, participating qualified mortgage lenders make a prepayment to gain access to consumers interested in connecting with mortgage professionals. Consumers who request rates for mortgage loans in Zillow Mortgage Marketplace are presented with personalized lender quotes from participating lenders. We only charge mortgage lenders a fee when users click on their links for more information regarding a mortgage loan quote. Mortgage lenders who exhaust their initial prepayment can then prepay additional funds to continue to participate in the marketplace.
    Display Revenues. Display revenues primarily consist of graphical web and mobile advertising sold on a CPM basis to advertisers primarily in the real estate industry, including real estate brokerages, home builders, mortgage lenders and home services providers. Our advertising customers also include telecommunications, automotive, insurance and consumer products companies. We recognize these revenues as impressions are delivered to users interacting with our website or mobile applications. Growth in display revenues depends on continuing growth in traffic to our website and mobile applications and migration of advertising spend online from traditional broadcast and print media.”

  12. 12
    2kt says:

    RE: Scotsman @ 7

    Shorting IPOs is the activity for those who think they are brighter than the sunlight. You are certainly one of those. So far, your stock market predictions are not worth much.

  13. 13
    Notorious ART says:

    Less than 44m in rev and they haven’t made a profit. I don’t think they deserve a multiple of 11x rev. Higher than goog and appl. But, you’re paying for growth as they say. I think I’ll be staying away, far away. It will be interesting to see how this all plays out.

    It appears like initial investors want to exit. I don’t blame them — they see their only opportunity. Does anyone know if Zillow is selling on the private markets(ie second market)?


  14. 14

    By David Losh @ 5:

    Zillow is the only online community that has half a chance of becoming a national listing site for consumers.

    The problem that Zillow faces, and the reason what you want will probably not occur, is Zillow has little ability to police listings. It certainly doesn’t work now, and I don’t know what they can do to make it better.

  15. 15
    ray pepper says:

    RE: One Eyed Man @ 11

    selling subscriptions to Agents and Broker partners does NOT work…Look at the success of LEDR formerly House….They continue to just suck their cash dry.

  16. 16

    RE: ray pepper @ 15 – They still exist?

    I’ve mentioned in the past how often I have to spend time with a sales person on the phone explaining that I don’t want to advertise on the Internet (Trulia and are the exceptions due to listing presentation–I’m trying to give listings a bit more exposure, not myself). What these sales people don’t seem to realize (or maybe it’s the agents that buy their services) is that if their service was any good, agents would be calling them!

  17. 17
    Real World Express says:

    It’s a buy for longs. Something like Zillow could eradicate the current agent and bank system, cutting out thousands from the purchase.

    They could not only find houses, but act as a marketplace. Clearly prices are moving towards car prices. The home page of the PI is featuring Polygon homes, brand new, for $139,000! You could select and buy a house all in one day on Zillow.

    Even better, you could “swap” houses…trade across the country. It could be come an arbitrage site for housing.

    The possibilities are endless and they (and Redfin and HotPads) are so well positioned its hard to see anything but success for a real estate based social network.

  18. 18
    Notorious ART says:

    RE: Real World Express @ 17

    The possibilites are endless. I can see it now – Groupon and Zillow for a strategic partnership and give customers the “Zoupon”. 50% off on houses and if you buy within 30 days you get your very own Pink Pony – with a saddle autographed by Andrew Mason. What a killer deal!

  19. 19
    ray pepper says:

    RE: Kary L. Krismer @ 16

    Oh yes they are still around. Nice building in Kirkland. Still flush with cash but burning it by the day…Lead Generation that kicks the customer to a Realtor simply is not tolerated by our educated NW population. Travel other areas of the country and I can see why Agents still pay for these leads.

    I have a Broker friend in another State that sucks up 1000 a month just so they can operate in that state. He does absolutely nothing but give his name and office. What a golden ticket……………………until the well runs dry( about 4 years at current burn rate)

  20. 20
    ChrisM says:

    As someone looking to buy a home, I have nothing but contempt for Zillow.

    Their listings are riddled with errors, and they could not care less. Back in 2007-2008 I reported I don’t know how many errors in lot size listings, only to get back the response “oh, there are so many listings you couldn’t possibly have them all be correct.”

    I’m talking order of magnitude errors in lot sizes, something like getting acres and square feet confused. Anyone searching for properties of a certain minimum lot size can forget about using Zillow.

    Nowadays, I occasionally stumble across cases where Zillow doesn’t even know a property is on the MLS! That would be great, as a buyer, to completely miss out on a property due to relying in Zillow to actually show all the listings!

    From this buyer’s perspective, what SOMEONE needs to do is present national listings and simply copy RedFin’s website.

    Then again, if people really believe Zestimates then I guess they deserve Zillow.

  21. 21
    Still Anonymous says:

    Sure, they lose a little bit of money every year, but they make up for it in volume.

  22. 22
    The Tim says:

    By ChrisM @ 20:

    Nowadays, I occasionally stumble across cases where Zillow doesn’t even know a property is on the MLS! That would be great, as a buyer, to completely miss out on a property due to relying in Zillow to actually show all the listings!

    Yeah, here’s the Zillow timeline for the home I bought in May:

    • March 14: The home is listed.
    • March 18: The sellers accepted our offer.
    • March 19: The listing agent marked it as pending in the MLS.
    • March 30: The home appeared on Zillow as an active listing.
    • May 20: We closed on the home.
    • May 20: The listing agent marked the home as sold in the MLS.
    • May 31: Zillow removed the listing.

    Nearly two months later, the May 20 sale still hasn’t shown up on Zillow. Anyone who relies on Zillow for timely listing or sale information is doing themselves a disservice. They’re better than nothing, but if you live in a market like Seattle where there are many far more accurate and timely sources, I really don’t see why you would ever use them.

  23. 23

    RE: The Tim @ 22 – Did you happen to track it on Trulia?

  24. 24
    David Losh says:

    RE: Real World Express @ 17

    You have that exactly right.

    You don’t need a Real Estate agent, or a Loan Originator. There is no set of laws that demand you do that. You can shop belly to belly with any person in control of Real Estate or has money to lend.

    I also think that is where Real Estate is heading, on the internet.

  25. 25

    By Real World Express @ 17:

    It’s a buy for longs. Something like Zillow could eradicate the current agent and bank system, cutting out thousands from the purchase.

    I’ll just address the loan side. I really don’t see that happening unless Zillow or someone associated with them wants to become a portfolio lender, or at least take a great risk of making a bunch of loans they intend to sell but can’t.

    This is sort of the lender side of “you don’t know what you don’t know.” You could easily do unsecured loans over the Internet, but doing that for secured conforming (or FHA/VA) loans, not very likely.

  26. 26
    David Losh says:

    RE: Kary L. Krismer @ 25

    Back in the olden days there was a functioning secondary market for loans. The computer changed that with the ability to perform long calculations of returns. Those loans are now securities for phantom profits.

    Enough about that.

    There is a market for property. There is a ton of cash in our economy to do portfolio loans. When you, as an individual investor, buys a loan, you ask yourself if that is a property you wouldn’t mind owning. Banks don’t do that. The secondary market doesn’t do that. Individuals do that.

    A company most certainly can be a clearing house for people who want to buy, or sell property, coupled with those who want to make loans based on the value, precieved value, of a property.

  27. 27
    The Tim says:

    RE: Kary L. Krismer @ 23 – Nope, I very, very rarely ever go to Trulia. After checking just now I notice that they have the most recent listing photos, but they still don’t show the May 20 sale.

  28. 28

    RE: The Tim @ 27 – Thanks. The reason I asked is it can sometimes be tough for a listing agent to keep listings on Trulia, Zillow and, in that order of difficulty. You have to check periodically that they weren’t dropped for some reason, even where your listing has a direct feed.

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