Bloomberg News

Zillow Plans to Have 2011 IPO, Change Its Image on Wall Street

January 13, 2010

Zillow Inc. (Z:US), the second-largest U.S. real-estate listing site by users, plans to go public in 2011 and will begin courting investors next month to boost its valuation, Chief Operating Officer Spencer Rascoff said.

Zillow’s challenge is that real-estate sites like Move Inc. (MOVE:US)’s, the No. 1, have low valuations, Rascoff said in an interview. Zillow, based in Seattle, plans a series of presentations to persuade investors it should be priced like leaders in other Web markets, including health-care publisher WebMD Health Corp. (WBMD:US) and restaurant site OpenTable Inc., he said.

The campaign may determine whether Zillow can make a profit for investors who poured $30 million into the company in 2007, including fund manager Bill Miller’s Legg Mason Value Trust. The deal valued Zillow at $400 million, a third more than today’s market value for Move and four times more than mortgage-referral site Inc. (TREE:US), said Rascoff, 34.

“The comps are awful,” said Rascoff, who said 5-year-old Zillow is approaching profitability and wouldn’t disclose sales. “We have our work cut out for us. Any company that took venture money in 2007 would.”

WebMD, based in New York, is valued at 4.5 times analysts’ sales estimate (WBMD:US) for this year, according to Bloomberg data. San Francisco-based OpenTable, which went public in May at $20 a share, is trading at 7.2 times projected sales. Move is valued at 1.6 times estimated revenue.

Rising Sales

Zillow begins its investor campaign at Goldman Sachs Group Inc.’s Feb. 23-25 Internet conference in San Francisco, Rascoff said. Zillow has 5.2 million monthly visitors, compared with 6.4 million for Move, according to research firm ComScore Inc. (SCOR:US) of Reston, Virginia.

Zillow boosted sales 65 percent last year, beating its revenue and earnings targets amid industrywide declines in advertising and housing, Rascoff said. The company gets its revenue from advertising, including banner ads and cost-per-click ads included in mortgage-rate tables.

The company’s growth is outpacing the U.S. online real-estate advertising market, said Kip Cassino, research director at consulting firm Borrell Associates Inc. in Williamsburg, Virginia. The market fell $100 million to $7.5 billion last year, according to Borrell. That’s almost one-third of real-estate and mortgage-ad spending in all media.

The number of initial public offerings will probably rise about 25 percent this year, according to a survey of 100 investment bankers released Jan. 12 by accounting firm BDO Seidman LLP. There were 80 U.S. IPOs last year, according to Bloomberg data. Rascoff said Zillow is “not a 2010 IPO candidate.”

‘Name Recognition’

Zillow may command a higher price if it can prove it is the fastest-growing real-estate site and has enough ad products to translate consumers’ attention into revenue, said Tony Alfonso, president of BDO’s corporate-valuation business in Los Angeles.

“They should be able to get a higher multiple for name recognition, but they have to show they can convert those eyeballs into cash,” Alfonso said in an interview.

Zillow will boost sales by adding new kinds of ads, Rascoff said. It will begin selling new lead-generation campaigns to mortgage lenders next month, letting consumers who have already viewed interest-rate quotes ask to be contacted by a specific lender, with Zillow getting paid for making the connection.

In tests, as many as 10 percent of consumers who make those requests close a loan, Rascoff said. Zillow hasn’t set prices for what it calls “customer-initiated-contact” ads, he said. The company’s target is to get half of its sales from mortgage ads by next year, up from 10 percent now, Rascoff said.

“With the market the way it is, these people are rabid for leads they have any semblance of a chance to close,” Cassino said. “And even with things as crazy as they are, 5 million people will buy houses this year.”

To contact the reporter on this story: Tim Mullaney in New York at

To contact the editor responsible for this story: Jonathan Thaw in San Francisco at

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Companies Mentioned

  • Z
    (Zillow Inc)
    • $108.9 USD
    • 1.55
    • 1.42%
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