Zillow quietly pursuing top producing agents

Rapid growth prompts portal to boost 2014 ad spend to $75 million

Zillow has a “deliberate and unstated strategy” to target top producing agents as advertisers on its platform, Zillow CEO Spencer Rascoff told investors on the firm’s second-quarter earnings call.

“We have been doing a lot of things to make sure that our impressions go to agents who value them at a higher rate,” Rascoff said.

Mouse trap image via Shutterstock.
Mouse trap image via Shutterstock.

The operator of real estate’s most popular website and network ended the second quarter with 56,818 agent “Premier Agent” advertisers — up 46 percent from a year ago — who paid an average of $320 each every month for leads.

That $320 monthly ad spend for agent subscribers in the quarter is a record high, up 20 percent from the same time last year and 12 percent from the first three months of the year.

Based on better-than-expected revenue through the first half of the year and continued growth, Rascoff said Zillow is upping its spend on its consumer marketing campaign for 2014 from $65 million to $75 million.

“Our deliberate focus on high-performing agents and their teams drove the significant increase in orders, and has prompted us to increase our full-year outlook,” Rascoff said in a statement. “Advertisers are clearly following audience, and we’re continuing to reinvest in the business to get the flywheel to spin even faster.”

Bringing more high-performing agents on to the platform as advertisers is good for Zillow, because those agents’ conversion rates on leads are higher so they want to buy more impressions to get more leads and do more business, Rascoff said. And it’s better for consumers, because they get a better agent, he said.

We are building an enduring brand. Now is the right time to press our advantage."

Some of that growth in per-agent spend could be attributed to Zillow’s agent-lender co-marketing program gaining traction, though Zillow doesn’t reveal how many agents participate in it. Zillow launched the program in June 2013.

Zillow co-marketing

Agents can invite lenders to share their advertising costs on Zillow in exchange for being featured on the agent’s Zillow profile page and the agent’s enhanced listings.

The co-marketing program allows Zillow subscribers to invite lenders to subsidize a portion of their ad spend on the portal in exchange for inclusion as a “preferred lender” in their ads and on their Zillow profile pages. It does not involve lead referrals, just shared display ad space.

Zillow’s aim for top agents is reflected in its business metrics. Existing agent subscribers represented a majority of the business Zillow did in the quarter, Rascoff pointed out. Sixty-two percent of the bookings Zillow sold in the quarter came from agents already advertising on the platform, he said.

In addition, agents who advertised with Zillow in the second quarter of 2013 spent an average of 62 percent more in the second quarter of 2014, Rascoff said.

That increase in spend was due primarily to agents buying more impressions — not from an increase in price per impression, Rascoff said. Zillow charges agents for a set number of ad impressions per month. Zillow used to sell ads by “share of voice” in a ZIP code, but switched to an impression-based model in August 2012.

The impression-based ad model allowed Zillow to sell new ads when inventory opened up with higher Web traffic, which has ballooned to over 50 million unique visitors per month to its network. The Zillow network includes Yahoo Homes, AOL Real Estate, MSN Real Estate and HGTV’s Front Door.

The rate of addition of agent subscribers to the platform is also slowing, reflecting Zillow’s now-stated plan that it’s concentrating on high-performing agents. The second quarter of 2014 is the first quarter that the net new number of agent advertisers has not grown from the previous year.

  1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014
Net annual growth in agent subscribers
15,414 16,111 18,046 18,841 18,938 18,011
Total number of agent subscribers 34,030 38,807 44,749 48,314 52,968 56,818

Source: Zillow

Net subscribers grew by 18,011 agents during the second quarter from a year ago, a hair off first-quarter annual net growth of 18,938 agents. Last year, year-over-year net growth in agent subscribers increased every quarter.

Zillow upped its full-year revenue guidance by $16 million from the estimate it put out at the beginning of the year to a midpoint of $322 million, Zillow Chief Financial Officer Chad Cohen told investors on the call.

Company 2013 revenue  Projected 2014 revenue* Projected % YoY 2014 revenue growth
Zillow $197.5 million $322 million 63.0%
Move Inc. $227.0 million $253 million 11.5%
Trulia $143.7 million $251.5 million 75.0%

Source: Zillow, Move Inc. and Trulia *Midpoint of the firms’ projected revenues as of the second quarter.

Zillow recorded a net loss of $10.5 million during the second quarter. Although revenue was up 68 percent from a year ago, to $78.7 million, expenses grew by 56 percent, to $89.4 million.

Zillow’s nearest competitor, Trulia, is expected to come under its umbrella sometime in 2015. It remains to be seen how realtor.com, the third-biggest national real estate search portal by audience, will fare.

Realtor.com, which is operated by Move Inc. under an agreement with the National Association of Realtors, received a significant boost to its estimated $25 million 2014 consumer marketing campaign in July when NAR launched its $35 million “Real People” campaign that features both realtor.com and Realtors.

“We are building an enduring brand,” Rascoff said of Zillow’s plans to up its 2014 ad spend to $75 million. “Now is the right time to press our advantage.”


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