Zillow CEO Spencer Rascoff (center, above "Z"), joined by other company executives, rang the opening bell for the Nasdaq today to celebrate the company’s initial public offering.
Five years after shaking up the real estate industry by making public property records and automated home valuations available to consumers online, Zillow Inc. today became a publicly traded company valued at nearly $1 billion.
Zillow said it raised $75.7 million in the IPO and private placement of 3.7 million shares priced at $20 each. Investors promptly bid the shares up to more than double that price after trading commenced this morning on the Nasdaq.
By early afternoon, Zillow’s share price had settled down into the $35 range — which would put the company’s market capitalization at about $962 million, if underwriters exercise an over-allotment option to bring shares outstanding to a total of 27.5 million in coming weeks.
That’s an indication of the promise investors see in the company’s future, given that Zillow’s regulatory filings in preparation for the IPO revealed that the company had racked up $79.5 million in cumulative losses since 2004.
Zillow appears to be headed toward profitability, having trimmed net losses from $21.2 million in 2008 to $6.8 million in 2010. Revenue nearly tripled during the same period, from $10.6 million in 2008 to $30.5 million last year.
The company has said it plans to use the money it raises to boost sales and marketing activities, and may use a portion of the proceeds to acquire or invest in "technologies, solutions or businesses that complement our business."
Skeptics questioned whether the company’s promise justified its nearly $1 billion valuation.
David Menlow, president of IPOfinancial.com, told Reuters that "all of the offerings in this marketplace are just so frothy that it defies any type of sensible valuation modeling."
HomeAway Inc., which operates a network of websites that match homeowners with travelers looking for vacation rentals and sales, raised $231 million in an IPO this month, and now has a market cap of $3.2 billion.
Another real estate-related company that went public in June, Bankrate, is valued at roughly $1.8 billion today.
"Today’s events were a milestone for Zillow as a company, but just one milestone on a long path — we’ve got a long-term focus," Zillow CEO Spencer Rascoff said in a statement.
"With that focus, what happens with the stock price in the near-term isn’t particularly relevant. We plan to continue delighting the tens of millions of users who come to our website and mobile applications each month, and our thousands of advertisers."
But the optimistic mood of the market could benefit other online real estate companies looking to go public, such as Trulia. Real estate companies that are already publicly traded, such as Realtor.com operator Move Inc. and technology-based brokerage ZipRealty Inc., have seen their share price surge in recent weeks.
Shares in Move shot up more than 12 percent this morning from Tuesday’s close, and were up 42 percent from a 52-week low of $1.80. But with a market cap of less than $400 million, investors still see Move as being worth less than half as much as Zillow — despite the fact that Move generated more than six times as much revenue as Zillow in 2010.
Move, which posted a $15.5 million loss in 2010, trimmed first-quarter losses to $1.6 million and expects to generate $200 million to $205 million in revenue in 2011. A spokeswoman for Move said the company had no comment on Zillow’s IPO.
Shares in ZipRealty are also on the rise in recent weeks, after the company closed offices in some markets to reduce costs and eliminated buyer rebates. But ZipRealty — which generated $118.7 million in revenue in 2010 and posted a $15.5 million loss for the year — has a market cap of less than $70 million.
Market cap of publicly traded real estate-related companies
Company (ticker symbol)
Lender Processing Services (LPS)
Move Inc. (MOVE)
*Based on 27.5 million shares outstanding at $35 per share
"It’s exciting to see the enthusiasm for Zillow — it really reflects the terrific growth profile they’ve built, and that profitability seems to be mounting," said ZipRealty CEO Lanny Baker.
Baker said Zillow’s IPO is a significant event because, with a few exceptions, "the real estate industry is so far removed from the capital markets." Although Zillow is not in the brokerage business, it’s tied closely to the residential real estate market, and today’s IPO brings exposure and investor opportunities to the industry.
Capital markets, he said, "do a good job in helping industries sort out and organize themselves."
Although Baker acknowledged that there are drawbacks to being publicly traded — including the time and resources publicly traded companies must devote to regulatory issues — "they are not that troublesome once you’ve mastered them."
Publicly traded companies gain credibility and another avenue for raising capital, Baker noted, and investor sentiment provides "an external scorecard (assessing) how you’re doing on a daily basis."
Also watching Zillow’s IPO closely today were executives at rival Trulia, which announced in February that it was retooling its management in order to pursue an IPO.
Trulia Chief Operating Officer Paul Levine — who joined the company this year after holding management positions with E-Trade and Yahoo — said the big questions were how capital markets would react not only to a real estate IPO, but to a smaller IPO.
"It seems, based on the first day of trading, that the market seems to like both," Levine said. "Investors tend to reward growth and category leadership. Any company with a story to tell around growth and category leadership will be rewarded."
It’s a story that Trulia no doubt intends to tell. Levine said the company doesn’t disclose financials, but has audience size and growth comparable to Zillow’s. For now, he said, the company remains focused on building its management team — it’s actively recruiting a chief financial officer, for example — before moving forward with an IPO.
At the macro level, "the real estate market is obviously in transition," Levine said. But "consumers are hungrier than ever for information, and agents are really hungry for business."
It’s that confluence of consumer and agent interest that Trulia is building on as it continues its "march toward category leadership," he said.
"We think of ourselves as a broader, more comprehensive tool for homebuyers," he said, offering market and neighborhood data, plus user-generated content such as agent advice to provide consumers with information on "property, places, process and pros (real estate professionals)."
Some have speculated that Apollo Management LP, the owner of brokerage company and franchisor Realogy Corp., is preparing to take the company public again. A recent debt restructuring would allow Realogy to shed $2 billion in bond debt by exchanging it for shares of company common stock. A Realogy spokeswoman declined to comment on Zillow’s IPO or speculation that Realogy has similar plans.
Seattle-based technology brokerage Redfin, which like ZipRealty employs a Virtual Office Website (VOW) with deep listing data to attract clients, has also been seen as a company that will go public some day. Redfin CEO Glenn Kelman did not respond to a request for comment.
Timeline: Zillow, from incorporation to IPO
|December 2004||Incorporation||Zillow Inc. files for incorporation in its home state of Washington, with Expedia founder Rich Barton as CEO. A number of other key executives, including co-founder Lloyd Frink, are also Expedia veterans.|
|November 2005||Prediction||Inman News predicts Zillow "will shake up" the real estate industry. Although the company’s intentions are still "shrouded in secrets," patent and trademark recordings filed by the company indicate "it has plans for some kind of online marketplace for real estate listings."|
|January 2006||Speculation||Even before the site launches, some are speculating it will force drastic change in the real estate industry — fears that are fueled by revelations that Zillow has acquired real estate brokerage licenses in five states.|
|February 2006||Beta launch||Zillow launches the initial version of its website, Zillow.com, in beta. The site offers automated valuations called "Zestimates" for 60 million U.S. homes. Two days later, the site logs its 1 millionth visitor.|
|March 2006||‘A hurricane’||Inman News columnist Bernice Ross declares that "A hurricane the magnitude of Katrina has just hit the real estate industry," as Zillow.com’s traffic surpasses other real estate sites despite questions about the accuracy of its valuations. ComScore Media Metrix ranks Zillow as the fifth-most visited real estate site in February 2006.|
|April 2006||Formation of technical advisory board||Zillow forms a technical advisory board to provide independent advice on improving the technology and algorithms that support the company’s online services.|
|October 2006||FTC complaint filed over valuations||The National Community Reinvestment Coalition, a group that promotes investment in traditionally underserved communities, files a complaint with the U.S. Federal Trade Commission claiming Zillow is misleading consumers and industry professionals about the accuracy of Zestimates. Zillow calls the allegations groundless, saying Zestimates are intended to be a starting point.|
|December 2006||Creation of listings portal||Zillow becomes a listing portal — real estate agents and consumers who register with the site can designate individual properties as "for sale," and owners can post a "Make Me Move" price. Industry reaction is mixed.|
|January 2007||IPO prediction||Venture capitalist Lucinda Stewart of OVP Venture Partners in Kirkland, Wash. predicts Zillow will go public in 2007.|
|March 2007||Zillow acquires brokerage licenses in most states||Rich Barton acknowledges that Zillow has acquired brokerage licenses "in most states" in order to ensure it has legal standing to publish real estate information. "We do not operate and have zero intention of operating any brokerages," Barton writes on the company’s blog.|
|April 2007||Arizona Board of Appraisal sends cease-and-desist letters||The Arizona Board of Appraisal issues two cease-and-desist letters to Zillow, charging the company’s automated valuations are appraisals and require a license. Zillow says its Zestimates are not appraisals, and continues to offer automated valuations to Arizona consumers. The issue is resolved in July when Arizona Gov. Janet Napolitano signs into law legislation exempting websites offering automated valuations from appraiser licensing requirements.|
|April 2007||Post info, photos for any property||Zillow introduces new tools that allow any Zillow user to post information and photos about any property, with listing agents and property owners having the ability to "take control" of for-sale property information and enter more detailed information.|
|July 2007||Neighborhood pages added||Zillow adds neighborhood pages with detailed demographic information for more than 130 cities, allowing users to add photos, events and news, and participate in discussions and Q&A sessions.|
|September 2007||Third round of financing||Zillow completes a third round of financing, raising $30 million, bringing total funding by outside investors to $87 million.|
|October 2007||ERA signs agreement for bulk upload of property listings||Zillow signs announces its first agreement for the bulk upload of about 80,000 property listings from brokerages affiliated with franchise network ERA Franchise Systems LLC. Zillow had previously accepted listings individually from consumers and real estate agents. When the announcement is made, Zillow is displaying 237,000 for-sale listings.|
|November 2007||New features for bulk feeds, newspaper classified ads||Zillow launches its bulk listings feed capability, allowing real estate brokerages to feed listings to Zillow.com. The company also announces a partnership with 11 newspaper chains that will allow it to receive classified ads for for-sale listings and open house announcements from 282 newspapers.|
|February 2008||Realogy brands to feed 700k property listings||Realogy Corp. announces it will feed 700,000 property listings from Century 21, Coldwell Banker, ERA and Sotheby’s brokerages to Zillow.com, expanding on the previous agreement between Zillow and ERA Franchise Systems. When the announcement is made, Zillow has about 1 million listings on the site.|
|March 2008||First MLS to feed listings||Zillow enters into its first partnership with an MLS — New England-based MLS PIN – which agrees to feed 60,000 listings to Zillow.com.|
|April 2008||Blog estimates Zillow’s value at $225M||The blog Silicon Alley Insider estimates that Zillow is worth about $225 million.|
|April 2008||Mortgage Marketplace launches||Zillow launches its Mortgage Marketplace, allowing consumers to request loan quotes from mortgage originators.|
|September 2008||Advertising alliance with 11 newspaper publishers||Zillow forges an advertising alliance with a consortium of 11 newspaper publishers, allowing them access to each others’ audiences.|
|October 2008||Premier Agent advertising program launches||Zillow launches its Premier Agent advertising program.|
|October 2008||40 layoffs announced: 25% of workforce||Zillow announces it is laying off 40 people, or 25 percent of its workforce, saying "unprecedented economic events" make a prolonged recession likely.|
|November 2008||Zillow relinquishes brokerage licenses in all but 2 states||Zillow announces that it is relinquishing its real estate brokerage licenses in all but two U.S. states, having established its ability to publish real estate-related information.|
|December 2008||Zillow Advice launches||Zillow rolls out "Zillow Advice," a new feature that allows consumers to pose questions to an online community of real estate experts. Zillow Advice builds on existing Q&A and discussion sections of the website that are already generating 40,000 contributions a day, the company says.|
|February 2009||Mortgage Marketplace reaches 1M milestone||By February 2009, mortgage originators had provided more than 1 million loan quotes to Zillow’s Mortgage Marketplace.|
|April 2009||Zillow iPhone app released||Zillow releases its first mobile application, a free iPhone app that allows users to see their location on a map as they walk or drive through a neighborhood, pulling up details on about 95 percent of all U.S. homes. The company goes on to offer apps for the iPad, Android and BlackBerry.|
|December 2009||Zillow launches rental listings, search||Zillow branches out into rental listings and search, offering visitors the ability to use the monthly payment they can afford as a search filter to compare rental housing and homes for sale side by side on a map.|
|January 2010||Zillow charges morgage lenders that offer loan quotes||Zillow begins charging mortgage lenders who offer loan quotes to consumers through the Zillow Mortgage Marketplace.|
|March 2010||Journal issues study on Zillow valuations in Arlington, Texas||A study in The Appraisal Journal concludes Zillow.com overvalued 40 percent of the 2,045 homes sold in Arlington, Texas, in the last half of 2006 by more than 10 percent. Zillow dismisses the findings, saying the data used was "out of date and limited in scope."|
|April 2010||CoreLogic sues Zillow, others||CoreLogic sues Zillow and seven other companies, claiming their automated property valuation services infringe on a 1994 patent. Two other patent infringement cases were also filed in 2010 that named Zillow as a defendant.|
|July 2010||Yahoo Real Estate, Zillow announce ad/listings deal||Yahoo Real Estate, Zillow announce agreement for Zillow to provide real estate listings to Yahoo Real Estate. Zillow gains the exclusive right to sell real estate agent advertising throughout the Yahoo Real Estate site.|
|September 2010||Spencer Rascoff promoted to CEO||Spencer Rascoff, a member of Zillow’s original executive team, is promoted from chief operating officer to CEO. Co-founders Rich Barton and Lloyd Frink, say they will continue to play an active role in the company — Barton as chairman of the board of directors, and Frink as chief strategy officer.|
|December 2010||Zillow launches agent ratings and reviews||Zillow begins collecting and displaying consumer-generated real estate agent ratings and reviews — but only if the agent and client have both activated profiles on the site. As of last month, Zillow had published more than 50,000 agent reviews submitted by consumers.|
|February 2011||Zillow, Yahoo Real Estate launch ad/listings program||Zillow flips the switch on the real estate listings and advertising program forged with Yahoo Real Estate.|
|March 2011||Zillow launches Rent Zestimates for 90M homes, apartments||Zillow.com begins offering "Rent Zestimates" for about 90 million homes or apartments — whether they’re actually available for rent or not.|
|March 2011||10K paid subscribers for Premier Agent ad program||By the end of March 2011, Zillow’s Premier Agent ad program boasts more than 10,000 paying subscribers, Zillow later reveals in a regulatory filing.|
|April 2011||Zillow acquires listings syndication platform Postlets||Zillow acquires listing syndication platform Postlets.|
|April 2011||Zillow files S-1 registration in preparation for IPO||Zillow files its initial S-1 registration statement with the Securities and Exchange Commission in preparation for an initial public offering. The filing reveals many previously unknown details about the company’s past, and its plans for the future. Although the company has amassed cumulative losses of $78.7 million since 2004, ads have helped Zillow nearly triple revenue from 2008-10.|
|April 2011||Zillow inks long-term agreement related to ListHub||Zillow announces a long-term agreement with Move Inc. to continue receiving data on about 2 million for sale listings aggregated by Move subsidiary ListHub from hundreds of multiple listing services.|
|July 2011||Zillow IPO is official||Zillow IPO is official.|