How did Zillow, the operator of the nation’s most visited real estate portal, grow revenue by 69 percent in one year?
It doesn’t hurt that the housing recovery helped boost traffic to the firm’s sites by 66 percent from a year ago in July, with 61 million unique visitors using mobile devices and the Web in July.
But the Seattle-based website operator was not counting on the resurgence of interest in real estate alone to drive growth.
During the second quarter, Zillow boosted spending on sales and marketing by 163 percent from a year ago, to $32.9 million. That’s about 70 cents of every dollar that came in the door in April, May and June — a record $46.9 million.
Zillow’s investment in brand advertising included the launch of a second TV spot and a national TV ad run in June, part of its first advertising campaign, “Find Your Way Home.”
The company’s investment in growth, plus a one-time $7.1 million expense — an “acceleration of share-based compensation expense … relating to a prior acquisition” — helped drive a $10.2 million net loss for the quarter, compared with the $1.2 million profit the company turned during the same period a year ago.
Zillow CEO Spencer Rascoff told investors during an earnings call Tuesday that the investment is delivering results, increasing Zillow’s audience market share twofold since the beginning of the year at the expense of competitors realtor.com and Trulia.
“We believe in the primacy of audience,” Rascoff said.
Zillow Chief Financial Officer Chad Cohen said the firm expects to report third-quarter net income between $3 million and $6 million.
Zillow is still in the early days of brand growth, Rascoff said, and will look to increase its 2014 ad and marketing spend beyond the $20 million slated for this year. The degree of the increase will be determined by its revenue and operating goals.
Traditionally, Zillow has made most of its money selling leads, advertising and services to real estate agents. Spending on sales and marketing also helps build the company’s customer base.
“Premier Agent” subscribers increased by 71 percent from a year ago, to an all-time high of 38,807 as of June 30, with average monthly revenue per subscriber of $266, up $3 from a year ago.
Zillow said it will continue to “aggressively attack” in its effort to become the go-to name in real estate.
The company’s new brand focus, which Zillow CEO Spencer Rascoff announced at the beginning of the year, includes a more clearly communicated stance on its development of agent technology.
Building enterprise-level tech solutions like an all-inclusive customer relationship management platform, though still important, will not be the main focus for the firm, Rascoff told investors Tuesday.
“The focus is growing audience,” Rascoff said. “Selling access to our audience is the big pie.”
That stance on agent technology, which Rascoff emphasized twice during the call, represents a shift from its competitors, realtor.com operator Move Inc. and Trulia, which have both have invested heavily in developing tools for agents.
Move Inc. has a popular customer relationship management platform in Top Producer and TigerLead Solutions, a firm it bought last September.
Trulia is expected to complete a $355 million acquisition of agent-software giant Market Leader Inc. this quarter.
Zillow currently provides tools to help agents manage clients and leads, IDX-enabled websites and a collaborative home shopping tool, a “two-way CRM,” it started rolling out in June.
Going forward, Rascoff said Zillow will focus on growing audience and providing a suite of free, “lightweight,” mobile-centric software tools to the agents that advertise with Zillow.
Two-thirds of Zillow’s revenue still comes from its real estate agent “Premier Agent” ad program. But Rascoff said Zillow’s mortgage business, based in part on its prominence in the mobile arena, could grow 10 or 20 times from what is now.
Zillow’s rentals segment, which launched in 2009 and was expanded with last year’s acquisition of Rent Juice and the rollout of a new suite of tools for managing rental properties, is in the early stages of monetization and will represent a larger chunk of the firm’s revenue in years to come, Rascoff said.
Revenue from Zillow’s mortgage business, which the firm broke out for the first time this quarter, was $5.8 million, an increase of 126 percent from second quarter 2012. That, along with the robust increase in the number of Premier Agent subscribers, led Zillow to revise its 2013 full-year revenue outlook upward, to between $186 million and $188 million.
Display ad revenue grew 29 percent from a year ago, to $10.5 million, representing about 22 percent of the firm’s total revenue. Rascoff said the firm could increase display ad revenue, but must balance that against the possible harm to user experience that more ads on the site would create.
Zillow sends more rental leads to agents each month than for-sale leads, Rascoff said, and the firm is in the early stages of figuring out the best way to monetize that. “There’s a lot of learning to do,” he said.
Answering a question on the call about the success of the firm’s relatively new impression-based ad model, Rascoff said consumer contacts to subscribing agents was up 80 percent year over year, with the number of leads outpacing Premier Agent count growth.