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Zillow Wants a Home on Wall Street

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Zillow, a real estate listing service that’s nearing profitability, is also dreaming of going public, though it’s pragmatic enough not to set its sights on doing so for another year. Zillow COO Spencer Rascoff today told Bloomberg that the company was courting Wall Street investors. The question is, why is he talking about it now?

If you ask me, Zillow is using its IPO dream declaration as a stalking horse for what is a more likely outcome: an acquisition, preferably from someone like Google (s goog). Zillow raised $30 million in 2007 at a whopping valuation of $400 million, and bringing the total amount raised in venture funds to $87 million.

Zillow, along with fellow online real estate listings provider Trulia, are prime acquisition candidates. Google, which was rumored to have made an attempt to buy local search and reviews provider Yelp, seems to be in the market for such vertical search services, especially in light of reports that it was kicking the tires at Trulia as well. Expect one of them to end up in the arms of Google.

Zillow, Trulia and many other post-2007 startups are in an awkward place: They’re not small enough for a quick merger but aren’t beefy enough to justify their massive valuations. The good news is that Zillow has a full grip on reality, as Rascoff indicated in his chat with Bloomberg.

Zillow’s newfound optimism stems from a strong showing in 2009. Despite the woes of the real estate industry, the company saw its traffic grow 37 percent (in terms of page views), launched a rentals listings service, and partnered with many U.S. newspapers to provide them with its real estate search. Zillow, with some 5.2 million monthly visitors, is the second-largest real estate listings service behind, which has close to 6.4 million monthly visitors, according to comScore.

That said, whether it harbors dreams of an IPO or a sale, Zillow needs to not just repeat but exceed its 2009 performance, when sales rose 65 percent even while online real estate advertising declined $100 million to $7.5 billion. The company is looking to sell more lead-generation advertising, most of it targeting the mortgage lending industry. And Zillow should benefit from any rebound in the housing market, but that might not be enough.

Image courtesy of Flickr user, The Truth About

16 Responses to “Zillow Wants a Home on Wall Street”

  1. Investors who backed Zillow would surely like some return and may get it but probably not one they had expected. An acquirer however may not get a platform that is anywhere near transforming to residential real estate search. It could even turn into a write off. Dramatic changes to the business model and brand (hard to do) will be necessary to constitute real value and if that happens, then it will not make sense to exit early. Trulia is probably better positioned for an earlier exit at a fair return to investors. It has taken in less money and has a simpler business model and brand. In the end, if a natural buyer is looking for true transformation, then neither is a candidate. If they’r looking for an entry into the space, then either will do but they’ll have to do significant work post acquisition to alter and optimize their business models to capture the opportunity fully. Neither has transformed the industry and a category leader has not yet emerged.

    Tarik Sansal

  2. Everyone knew there was a housing bubble. With 9/11 the economy took a big hit. Still, politicians pushed lending institutions to make shaky loans, banks made shaky loans, people bought beyond their means, and then the house of cards began to fall. Who wasn’t to blame? Sadly we have a government that doesn’t understand the conditions necessary for businesses to want to hire. Until they learn, those big, bad businesses won’t be doing any hiring and the economy will continue to limp along. But hey, at least we’ll have our unemployment checks to keep up going, and short-term jobs bought at huge expense to the American taxpayer. Buffet must believe the recovery we keep hearing about will finally start producing jobs. Only question is will the jobs be found in the good ole USA? But I do like Buffet and hope his optimism can help generate a little enthusiasm. Certainly the pessimism I see in these posts can’t help drive anything positive.

  3. Google’s mortgage move today has the potential to slow Zillow’s drive for an IPO.

    However, one thing Zillow did very well from the start was to build audience not by catering to Google through excessive SEO (they have since stepped up these efforts)but to gain mind share by creating buzz around the Zillow name itself.

    This is something Google can’t take away from them and will serve them in good stead.

    Here is my view on google’s mortgage move:

  4. Clearly both Google and Bing want to surface more information directly in their search engines. In verticals like airfare or real estate, an acquisition can get them traction and depth of data far quicker than trying to re-invent.

    If the Google/Trulia talks continue, I’d say a Trulia acquisition is likely by Google, with their lower valuation and existing integration with Google maps. Perhaps Zillow then plays the Bing card and bets on a higher purchase price from MSFT, since they will have no other candidates to acquire to compete with Google Real Estate. A similar scenario played out with DoubleClick and aQuantive in the online advertising space.

  5. Om
    Spencer and Zillow have done an extrodinary job in building brand and audience since their inception. The real drama will come when Zillow files for their IPO and we all can see exactly how much revenue and profits are and what are the sources of those items.
    Congrats are premature on the IPO, but in order on the progress to date.

    • Hey I totally agree — there is nothing quite like reading the S-1 filings of start-ups.

      Spencer, and Zillow have done a good job of staying focused despite a terrible economy and now let’s see where the company goes next. I think 2010 is going to be an interesting year for them. I look forward to keeping you posted and myself informed about this company.

  6. jimjerky

    I agree with everyone. Zillow is trying to get bought. Problem: non one wants to buy them and they probably know this already. The newspaper companies are dead. Yahoo is shedding portal-like assets, the New York Times is on the defensive, and Google isn’t buying this type of real estate site if they ever do buy something in the category.

    Microsoft also seems to be quiet when it comes to buying content sites.

    I honestly do not see a buyer which means they needs to find another way out. They have been in business since 2004. Their people must be getting VERY tired.

    It’s too (small) and slow growing to go public. Their 65% number is probably as compared to their worst year ever — the year before. I am not impressed with this company. They seem to have squandered all the early buzz they once had.

  7. @Om,

    Sales growth of 65% sounds great, but I was part of 2 high growth startups that had sales growth even greater, more users (worthless metric except in the valley unless Zillow can measureable convert to a home sale), and last decades lax IPO market nearing its’ end. A modest merger and company restart were the results. Bottom line, Zillow should be able to stand on its’ own feet, and shouldn’t be looking for a sugar daddy exit. Google doesn’t need Zillow as they replicate Zillow’s services easily. Let’s move into the 21st century.

    My $.02,


    • Curtis

      I don’t disagree with you on the whole issue of “standing” on their own feet. I think more and more companies need to keep that in mind, especially here in SV where “flip” has become part of the mentality.

      Google doesn’t need Zillow but the data of Zillow makes it easy for them to get going. It is the same thing as Yelp — it is good to get structured data from the get go, and expertise as well.

      Anyway you $0.02=$20,000 for me. :-)