Zillow shares soar on expectations for future growth

Profits down at end of 2012 despite 73 percent revenue growth

Fast-growing real estate marketplace Zillow saw profits fall 44 percent from a year ago during the fourth quarter of 2012, but shares in the company soared to a 52-week high today on expectations for future growth.

Zillow reported that fourth-quarter 2012 revenue was up 73 percent from a year ago, to $34.4 million, but net earnings fell to $500,000, down from $900,000 during the same period in 2011.

For the year, profits were up 436 percent, to $5.9 million, based on a 77 percent year-over-year revenue growth to $116.9 million. Zillow’s looking to continue that growth this year.

The listing portal will be “stepping on the gas in 2013,” said CEO Spencer Rascoff in an earnings call with investors.

Zillow expects about 50 percent more revenue in 2013 by continuing to monetize its real estate, mortgage and emerging rental marketplaces, Rascoff said.

Shares in Zillow were trading for as much as $47.85 today, a high not seen since the company’s 2011 initial public offering.

Although shares in Zillow traded for as much as $60 when the company went public on July 20, 2011, they closed below $36 that day. In the last year, closing prices for shares in the company have ranged from a low of $23.36 on Nov. 15, 2012, to a high of $46.86 on Sept. 20, 2012.

Last year, Zillow shifted its subscriber revenue model, made four acquisitions, and took some criticism for its business model, which relies heavily on ads for buyer’s agents that appear on listing detail pages. Some brokerages that provide listings to Zillow and other third-party portals object to such ads.

But many agents find the ads a valuable tool for landing clients. At the end of 2012, Zillow Premier agent subscribers numbered 29,473, up 87 percent from a year ago. Average monthly revenue per subscriber measured $267 in the fourth quarter, 3 percent above the fourth-quarter 2011 tally.

As of this week, Rascoff said, all subscribers are now purchasing impression-based ads, instead of shares of a ZIP code — a new system Zillow announced in August that allows it to monetize, and scale, with higher consumer traffic, but left some wondering if the move might scare off change-averse subscribers.

The projected 2013 revenue growth won’t portend high profit margins, Rascoff said. The company’s market research suggests most consumers don’t know Zillow’s — or anyone’s — name as the go-to site for real estate, he said. So Zillow will invest heavily in sales and advertising in 2013.

“There’s a huge brand white space,” Rascoff said. Zillow’s goal is to “create a massive, enduring brand.”

Zillow’s capturing only 2 percent of total ad spending by real estate agents each year, Rascoff said, and will go after more of that market, he said.

In 2012, Zillow’s sales and marketing expenditure was $49.1 million, 42 percent of total revenue. In 2013, Rascoff said, that number will likely grow to about $80 million, about half of projected 2013 revenue, reflecting the company’s desire to grow brand awareness.

Yesterday, Zillow announced it’s now powering real estate info on Google Now, an extension of Google’s search app for mobile devices running on the Android operating system.

Last week, Zillow announced it’s taking its TV commercial, introduced in September with a limited release, nationwide on HGTV, Comedy Central, MSNBC and Travel Channel. After experimenting with different ads over various marketing venues in 2012, Zillow will ramp it up in 2013, Rascoff said.

Zillow’s TV ad, part of its 2013 marketing campaign.

This heavy reliance on sales and marketing brought Zillow criticism earlier in the year, which was fueled in part by Zillow’s reluctance to publish its “churn rate,” the rate of subscriber turnover.

Zillow’s focus in 2013 will be on generating more consumer engagement — nearly 46 million unique visitors visited its network in January, more than half coming from mobile — and refining and expanding its offerings for real estate agents, Rascoff said. Those offerings include websites and a customer relationship management (CRM) platform.

Zillow will also be looking to grow its “marketplaces” for real estate, mortgage, rentals and home improvement, Rascoff said.

Zillow has a business model of incubating emerging marketplaces, generating engagement, eyeballs and developing tools professionals can use, Rascoff said.

The company followed this path with its real estate and mortgage marketplaces, which both now bring in revenue. The company plans to start generating ad revenue this year from Zillow Rentals, launched in October, and eventually the home improvement platform Zillow Digs, which launched last week.

Zillow signed agreements in 2012 to acquire four companies: RentJuice, Buyfolio, Mortech and HotPads. The company employs more than 500 workers, up about 50 percent from a year ago.

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