ZipRealty has posted only two profitable quarters in its short history, but the company’s bottom line was near break-even in the first quarter of this year and its growth since its inception in 1999 has been impressive.

ZipRealty has posted only two profitable quarters in its short history, but the company’s bottom line was near break-even in the first quarter of this year and its growth since its inception in 1999 has been impressive. The future could hold as much as $69 million in IPO capital for brand-name advertising, expansion, technology and possibly acquisitions of other businesses, technologies and other assets.

Or at least that’s the outlook portrayed in the initial public stock offering registration statement the innovative brokerage company filed today with the Securities and Exchange Commission.

Zip’s revenues have grown from $4 million in 2001 to $17 million in 2002 and $34 million last year while losses shrunk from $13.8 million in 2001 and $14.8 million in 2002 to just $4.6 million last year. Closed transactions jumped from 850 in 2001 to 5,400 in 2003, and the average net revenue per transaction increased from $4,700 in 2001 to $6,000 in 2003, according to company’s preliminary registration statement.

In the first quarter of this year, net revenue hit $10.9 million and the bottom line landed near break-even at a $115,000 loss. Annualized (but without seasonality adjustments), those figures would amount to $43 million in revenue and a loss of less than half a million dollars.

The revenue figures are net of the home-buyer rebates and home-seller commission discounts for which the five-year-old brokerage company is known in metro markets around the country. Operations currently exist in Atlanta, Baltimore/Washington D.C., Boston, Chicago, Dallas, Los Angeles, Orange County, Phoenix/Scottsdale, Sacramento, San Diego, the San Francisco Bay Area and Seattle.

Like traditional brokerages, the company generates revenue principally from real estate sales commissions. Less than 5 percent of the top line is earned from marketing and co-branding deals Zip has with online mortgage broker E-Loan, among others, according to the registration statement.

The company had 708 employees at the end of last month. Of that total, 594 were licensed realty agents, 52 were district directors or field support personnel and 62 were corporate employees. The roster of sales agents grew from 163 at year-end 2001 to 440 at year-end 2003. Those agents earn commission splits of 40 percent to 75 percent, based on their productivity, plus allowance of $750 to $1,500 per month for expenses. They also get access to medical insurance, a 401(k) plan, an employee stock plan and reimbursement for certain marketing costs, according to the registration statement.

ZipRealty’s agents focus on listings and selling property to prospects identified by the company’s lead systems, the SEC filing stated. The company’s proprietary Web-based system generates leads, automatically connects registered users with a local Zip agent and provides customer relationship and business management systems.

“In an industry that has been slow to embrace technology and that is characterized almost exclusively by independent contractor agents, our Internet-enabled, technology-driven, employee-based model provides us with a distinct competitive advantage in being able to consistently deliver outstanding service to our clients,” the company stated.

Zip also has relationships with more than 35 “lead sources,” the majority of which are paid for on a cost-per-click, cost-per-lead or cost-per-impression basis. The registration statement did not disclose the identity of those lead sources.

Nearly 400,000 registered users accessed ZipRealty.com during the six months prior to April 30, 2004, according to the registration statement. Those users could access a searchable database of information about 315,000 for-sale homes. Most of the information is downloaded seven days a week (often multiple times per day) from the 27 MLSs to which ZipRealty belongs.

The risk factor disclosures in ZipRealty’s SEC filing include the usual assortment of warnings and cautions, plus a section that summarizes how competitors could harm the ZipRealty’s business model through local multiple-listing services that implement the National Association of Realtors’ mandatory policy on virtual office Web sites.

“We operate a VOW, which is a password-protected Web site which allows us to show complete MLS data directly to consumers without their having to go through an agent…One NAR policy provision, known as “opt-out,” creates a mechanism for individual brokers to prevent their listings data from being displayed on certain competitors’ VOWs…Although none of the MLSs of which we are a member has implemented a VOW policy with any of the “opt-out” provisions, should any of them decide to do so, it could potentially restrict our ability to display complete MLS home listings data to our consumers, which is a key part of our business model. Should our ability to display MLS listings information on our web site be significantly restricted, it may reduce demand for our services and materially harm our earnings and results from operations,” the company stated.

ZipRealty has a relatively egalitarian compensation structure for its top executives. CEO Eric Danziger was paid a salary of $275,000, plus a bonus of $20,000 last year. Gary Beasley, EVP of financial operations, and Scott Kucirek, EVP of new market development, each earned $150,000 in salary and a $4,000 bonus. William Sinclair, SVP of sales and operations, earned $150,000 in salary and a $3,500 bonus, and received $3,600 in temporary relocation-related housing costs. Pat Lashinsky, VP of marketing and business development, earned $132,000 in salary, plus a $3,500 bonus.

Those compensation figures do not include the soon-to-be very lucrative stock options granted to those five executives. Danziger was granted an option to purchase 2 million shares when he joined the company, and he and the other four also hold options to purchase many more shares of the company’s stock. A number of venture capital companies also collectively own millions of shares of the company.

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