The business of online real estate marketing as presented in this country by Realestate.co.nz and Trade Me Property is not only appealing to buyers and sellers of property (and their appointed real estate agents), it appeals globally as an investment option – one that garners high valuations.
This morning (July 20th EST) Zillow floated 20% of the shares in the company. The company was launched in 2006 and unlike other traditional real estate portals it started life as a property valuation website using publicly accessible data to place a valuation estimate on every house in America. This appealing data set generated massive consumer traffic and interest which over the years has morphed into a complete listings portal for property for sale, for rent as well as a unique mortgage marketplace. The US has a complicated middle layer for property listings unlike almost any other country in the world and as such challenges real estate websites to access the complete set of listings data.
Today Zillow is in the top 3 real estate websites in terms of website traffic. It has a valuation based on its listed shares on the NASDQ – currently at this moment of US$671m – that is based on a share price of $38.50. The shares launched at $20 hit a high of $60 and seem to be settling at this level at the close of the first day. A pretty impressive result for a company which has had around US57m invested in it through venture investment funds and has yet to turn a profit – reporting an operating loss of US$6.8m in 2010.
Zillow certainly has a long road ahead to demonstrate that its business can justify that valuation and show a return to the investors – the IPO has added close to US$80m to its bank balance to drive the business forward.
By contrast to Zillow in the US, in other major developed countries the market value of online real estate companies has been long established. The UK website of Rightmove.com and the Australian website of Realestate.com.au have both been listed on their respective stock markets for over 7 years.
The table below shows the relative financial performance of these key sites across these key markets.
When placed against these powerhouse real estate website Zillow looks quite small in comparison especially when judged by the scale of the US market – simply based on revenue the Zillow latest full year shows just NZ$0.11 of revenue per person a staggering 100 fold less than the powerhouse of Australian site Realestate.com.au with $NZ$10.70 per person. The results for Realestate.com.au maybe be slightly inflated as they do have a couple of international businesses, however Australia represents over 90% of the revenue and more than 100% of the profit (the Italian business currently makes a loss).
So Zillow has a major upside if it can continue to grow traffic and industry advertising dollars. It is not without competitors in the form of Realtor.com, Yahoo Real estate, Realestate.com and Trulia to name but a few of what is a very cluttered / competitive marketplace. However it is very clear from this IPO for Zillow and the current financials and investor demand – online real estate certainly holds strong appeal for investors.