Zillow shares jump 79% in IPO
The value of your home may be plummeting but a website that tracks your housing losses is soaring.
Zillow Inc. became a hot listing Wednesday when its shares jumped 79% on their first day of trading, making the online real estate company the third-best initial public offering of the year.
Seattle-based Zillow, which listed on the Nasdaq Stock Market under the ticker symbol “Z,” jumped to $35.77 from its $20 IPO price.
That underscored the growing euphoria for Internet stocks as investors try to latch on to social media and other Web-related companies that have zoomed into public consciousness.
The surge in stocks of companies such as Zillow, LinkedIn Corp. and Pandora Media Inc. contrasts with the muted first-day performances of most other IPOs. For example, Skullcandy Inc., a music headphone company that also made its debut Wednesday at $20, closed unchanged.
The Internet-stock fever has sparked concerns among experts who see some parallels to the late-1990s dot-com bubble that popped in 2000. The Internet-stock momentum continues to mushroom, with Zynga Inc. and Groupon Inc. already having filed for IPOs and Facebook Inc., the colossus of the social-media sector, expected to file later this year at a valuation topping $100 billion.
Though Zillow has solid prospects, the 7-year-old company has yet to turn a profit and by one estimate controls less than 6% of the Internet real estate market. Competing for online home listings are rivals like Trulia.com, as well as local real estate agencies and big Internet portals like Yahoo.
“There is a little bit of concern that people are pretty much eating whatever is out there,” said Nitsan Hargil, research director at GreenCrest Capital Management in New York, which pegs Zillow’s underlying value at $23. “We would have liked to see people be more discerning regarding quality and valuation.”
Zillow became popular during the U.S. housing boom as Americans made a pastime of checking their steadily rising home values.
The extended slump in the U.S. housing market apparently hasn’t dented consumer use, except that many people now are gauging their slumping home values.
“When housing prices change people want to see what their house is worth,” said Francis Gaskins, editor of IPOdesktop.com in Marina del Rey. “If the housing market goes down another 5 or 10% people will want to know how that affects the value of their home.”
Zillow, which raised $69.2 million in its offering, said it had 22 million unique users in May, more than double the level a year earlier. The site also contains real estate listings, mortgage data and other services.
The jump in its stock stemmed partly from the limited number of shares Zillow sold. It has 27 million shares outstanding but released only 3.5 million.
Several Internet companies recently have followed similar game plans of releasing a small “float,” which has the effect of generating headlines and pushing up stock prices.
Despite its first-day gain, Zillow is a small company. Its market capitalization of $964 million is notably less than other recent Internet IPOs.
Investors have been drawn to Zillow and other Internet sites that are perceived to have large bases of active users who can buy products and services. In contrast to dot-coms of a decade ago, many of today’s companies have growing revenue and several already are profitable.
Zillow lost nearly $6.8 million in 2010 and $826,000 in the first quarter this year. But revenue is expanding fast and the company is expected to turn a profit later this year. First-quarter sales rose to $11.3 million, up from $5.3 million a year earlier.