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There’s always something to howl about

Regarding the Zillow.com IPO: “Since when is a seven year old company with really no large scale growth prospects that has lost money every single year on revenue less than $45 million/year worth half a billion dollars? Am I missing something?”

The question comes from a comment to a post at Seattle-based start-up blog, GeekWire. The news? Zillow.com is bumping the per-share price on its forthcoming IPO to as high as $18, up from the $12-$14 range it started with when the public offering was announced.

I like that question, because it parallels one of my own: What, precisely, can Zillow hope to do — other than provide big paydays for its VCs and founders — with $71 million in new funding? Which parts of the site will require that much build-out?

My take: The web-tech IPO craze that’s going on right now is just the next phase in the rape-the-rubes strategy Wall Street has pursued since internet start-ups came on the scene in the late ’90s. There is plenty of money to be made churning the stock of “businesses” that, in the end, all amount to MySpace.com — all hype, no actual value.

What’s the name for that phenomenon…? Oh, yes — a bubble.

The good news: Cynthia Pang Nowak, formerly Redfin.com’s queen-bee PR geek, is now signed on with Zillow. While she may be both the smartest and most breathtakingly beautiful woman on the Puget Sound, it remains to be seen if she can answer the BloodhoundBlog question: What would David Gibbons do?

Meanwhile, GeekWire.com deserves your daily attention. Run by Todd Bishop and John Cook, formerly the start-up reporter for the Seattle Post-Intelligencer and a long-time friend of BloodhoundBlog, it’s kind of like TechCruch in the rain — but without the bluster and hyperbole. The daily email digest is quick way to keep up with the wired side of our world.

But: Am I all wet? Does Zillow.com look like a buy to you at $18? Can it go to $36? To $180? To $0.01? I like the people who work there, and the founders have been very good to us from the beginning. But I’ve never seen the value of Zillow.com, except as an advertising play, and I still don’t. As with the comment quoted above, am I missing something?

Related posts:
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  • Let’s Play the Trulia Valuation Game! Prizes to the Winner!

  • 16 comments

    16 Comments so far

    1. Eric Bramlett July 15th, 2011 2:27 pm

      We’re definitely in the middle of Dotcom Boom/Bubble Part II. LinkedIn is more valuable than AMD?

      Zillow has done a commendable job establishing itself as a reputable source of expert real estate information. The real value, in my opinion, is that Zillow is the only potential competitor to the National Association of Realtors, when/if they ever choose to become one. Zillow’s difficulty lies in the fact that they must work with NAR and local boards in order to reach their revenue source (agents) so working towards that goal (if it is one) is difficult/next to impossible.

      Zillow’s value is nowhere near $18/share using traditional metrics, so whatever inflated figure they reach is through speculation. Could their speculative value reach $36, $72, $180 per share? That’s up to the speculators.

    2. Michael Cook July 18th, 2011 7:59 am

      I would like to see their business plan. They seem to be trying to get into the mortgage business.

      They also might add value by getting into the housing reporting business. I could see charging to aggregate the data they track for lots of different companies.

      Honestly, the value is in the data and not in their relationship with the realtors. I dont ever see them making that much from listings or from the brokerage business. Bringing in an economist or two and leveraging their data, they could establish themselves as the foremost expert on real estate pricing and trends. Thats worth $76MM, maybe more.

    3. Robert Worthington July 19th, 2011 9:27 am

      Zillow has also copied Homegain on a few items. You can see Louis’s Blog at blog.homgain.com.

    4. Eric Blackwell July 19th, 2011 2:47 pm

      The only way i see them being able to justify the kind of valuations that they are insisting are there would be to either 1) supplant R.com (read: R.com or NAR or both) in being the king extractor of dough from Realtors or 2) supplant the entire system by rolling out as a brokerage and turning into mega-Redfin.

      I too like the folks at Zillow, yet do not see the value. Bramlett may well be right that this is dot.com bust 2, but where folks lay out that kind of dough, but to me there has to (or should have to) be a large strategy behind it. In this case, there will still be the VAST amount of control retained by the two principals, so my guess is that they are truly evaluating strategies that cannot be pleasing to the common realtor…thoughts?

    5. Greg Swann July 19th, 2011 3:13 pm

      For reference, Z announced this afternoon that the IPO per-share price will be $20. Somebody thinks there’s value there. I’ve requested a copy of the prospectus.

    6. Thomas A B Johnson July 19th, 2011 3:43 pm

      As far as real estate data goes, NAR built RPR for $25 million. RPR has the MLS sold listing data, which is probably the holy grail for bankster mortgage alchemists.

      If Zillow is counting on REALTOR’s coughing up fees, I would like to know what their member projections are. Is it NAR 800k or NAR 250k members?

    7. Eric Blackwell July 19th, 2011 5:39 pm

      @prospectus – That would be an interesting read. I have read all of the various revisions of the filings so far and find nothing to support that level of valuation –and even LESS to support that level of valuation while keeping over 80% of the share value in the hands of the founders. I am NOT saying it won’t sell for that. I AM saying that I do not see how.

      Again, I like the guys on Team Zillow, and I respect their business acumen, but the valuation EVENTUALLY has to generate the money to support it. Getting the eyeballs is fine, but those eyeballs need to be connected to a butt pocket with a wallet in it. ;-)

      @Mr. Johnson – agreed. That’s why I think Zillow may be thinking going Redfin2 and being a brokerage / doing referrals in a more direct way. That is the only way to generate the $$$ needed to support those valuations…and make no mistake…shareholders will be demanding. When you buy at these early prices, it HAS to be with the expectation of gain.

    8. Michael Cook July 20th, 2011 8:26 am

      If they are going to be a Redfin2, why isnt Redfin at that kind of a valuation? I dont think it can only be one of those things. It might need to be all of them, plus a mortgage brokerage (Lendingtree.com), plus a real estate data repository (propertyshark.com), plus a Redfin, plus more.

      I would love a one stop shop for all of those things and would certainly start there when searching for my next house or even when considering selling my house. The question is would I pay for that (probably) and would someone pay to find me there (???).

      Still feels like its substantially overvalued.

    9. Cynthia July 20th, 2011 9:15 am

      @Greg – thanks for the welcome, you’re making me blush. And what would I do? Depends on the situation, but never “beat the snot” out of anyone :)

    10. Michael Cook July 20th, 2011 10:51 am

      Valuation currently at $1 Billion. The owners should hit the sell button immediately.

    11. Thomas A B Johnson July 20th, 2011 4:45 pm

      At a $1 Billion valuation, could they not just buy Redfin?
      They gave up their broker licenses a couple years ago. Redfin operates in most of the high commission markets and I bet the Redfin VC types would love to put their $50+million(I lost count)elsewhere. I do think that there will be big consolidation in the VC/Bankster backed real estate space.
      My suggestion, Spencer Rascoff, CEO of Zillow,(Z, NASDAQ) would be a canonical real estate vertical to include a way for brokers to list and sell properties with divorced commissions and create a space where the NAR/MLS oligopoly would have some competition.

    12. Gabe Sanders July 23rd, 2011 6:50 am

      Can’t believe that their valuation is sustainable. I’m guessing it will merge or be bought for their technology in a little bit of time.

    13. Susan Horton July 24th, 2011 7:06 pm

      Zillow also claimed to grow bigger than Realtor.com and then had to retract it. That was in 2009. I don’t blame Zillow and think the site is good, but I’m just not sure where they get some of their numbers.

    14. Joe River July 28th, 2011 12:00 pm

      What are they expected to do this quarter?

    15. Bob August 5th, 2011 12:53 pm

      Seems very scary. Unlike Facebook, google… that has a significant revenue stream from Advertising, I see Zillow as more of a handy App for someone interested in a very general estimate of their homes value. I know that they are selling leads to realtors by offering some exclusivity for zip codes but what I know for sure is that most succesful Realtors are savvy enough to find their own leads through their own systems. I am definately reminded of the Dot.Com bust.

    16. Tony August 5th, 2011 2:27 pm

      Deja Vu, all over again… dotcom boom around the corner, in my opinion.
      Skype was sold for $8.5 BILLION a couple of months ago, and two years ago was sold for what, $2 billion?