Real Estate Website Is off to a Bubbly Start

Posted by Jim DeBellis on July 21st, 2011

Oh, the irony!, the “in” darling of real estate wbesites, just went public and its IPO shares tripled in value on the first day – at least, for a while. Founded by the same former Microsoft execs that rolled out Expedia a few years back, Zillow is best known for its “Zestimate” that uses a proprietary algorithm to appraise the value of properties, plus it has the usual listings and other market info.

So, let’s see…this company”s purpose is to make money by featuring a housing market in crisis and will tell you that your property is becoming worth less and less. Don’t get me wrong – Zillow is a fine website. It had 22 million visitors in May and has a nice collaborative agreement with Yahoo! that could position it for success. But the fact (and the irony) is that it’s still losing money, in spite of revenue gains in the past year, and it’s $35 stock price (nearly double it’s $20 opening price) makes it worth almost a billion dollars.

It’s trading at nearly 30 times revenue, like many of the dot-com companies of the late 90s, when geniuses told us that fundamentals (like profitability and a valuation based on real revenues) didn’t matter in this “new economic reality.” We know what happened to that bubble. And, of course, the added irony that the thirst for information about the terrible state of the post-bubble housing market is creating a valuation bubble for Zillow can’t help but bring a smile to an old jaded face.

Sure, everybody wants a piece of the new stock on the block. But, just like the house for sale down the street, if you wait a month you’ll be able to get it cheaper.