Seattle online real-estate listing company Zillow says it will begin trading on the NASDAQ stock exchange Wednesday at $20, a price higher than its recently revised estimate of $16-$18 per share. That price could value the company at about $540 million. Zillow is selling nearly 3.5 million shares, seeking about $70 million.
Nationally, the Zillow (NASDAQ: [[ticker:Z]]) IPO is being watched as an indicator of whether smaller, unprofitable tech companies will be able to head to the public markets while the IPO window is open. Zillow has attracted nearly $90 million in financing over its lifespan.
As the first Seattle-area technology company to hit the public markets in about a year, Zillow also is carrying a lot of water to represent the Pacfic Northwest’s innovation community. If the stock underwhelms, the default line of commentary about Seattle’s tech scene will include references to a poor showing for quite some time. If it does well, the region could glean some positive publicity—not to mention some new money that entrepreneurs will hope finds its way back into the startup scene.
Zillow is a bit of an odd character in the current IPO game. It’s not a hot social networking or gaming company, instead harkening back to its mid-decade founding as an early Web 2.0 offering. While its initial intent was to bust through the sometimes opaque real estate pricing systems, Zillow has settled into a less revolutionary, but still useful site for real estate properties, agents, mortgages, and rentals.
The company isn’t profitable, although losses have been narrowing from about $12.9 million in 2009 to about $6.8 million in 2010. Zillow’s revenue doubled last year to about $30.5 million, but that’s not a blockbuster figure these days. Revenue growth in the past few years has been largely driven by growth in Zillow’s “marketplace” revenues, which include subscription fees for real estate agents and advertising sold to mortgage lenders, along with charges for lenders to participate in the company’s Mortgage Marketplace.
Another thing that could put off investors is the tight control that co-founders Rich Barton and Lloyd Frink will have over the company. The two are the sole holders of Zillow’s Class B stock, which has 10-to-1 voting rights over the regular Class A shares. Those positions, along with their Class A holdings, mean that Barton and Frink will collectively hold the keys to any major decisions—not the other shareholders.
Three investment groups have the most to gain through a Zillow IPO. TCV Funds holds almost 30 percent of Class A common stock, followed by Benchmark Capital, with 19 percent, and Par Investment Partners, with about 11 percent ownership
The underwriters are Citi, Allen & Company, Needham & Company, ThinkEquity, and First Washington. They’ll have an option on nearly 520,000 additional shares to cover any over-allotments. Zillow also is selling about 275,000 shares to existing investors in a concurrent private placement.
Zillow had a pretty big year in 2010. In July, the company partnered with Yahoo Real Estate, creating the largest real estate advertising network in the industry. It inked another partnership in the fall, this one with Chicago-based Apartments.com to create a more comprehensive national database of apartment listings.
Spencer Rascoff was promoted to chief executive last fall, taking over for Barton. At that time, Rascoff said the Zillow Mortgage Marketplace was its fastest-growing business. That feature lets consumers anonymously shop for mortgage rates in different markets around the country. Zillow also recently extended its brand of pricing estimates-or “Zestimates”-to apartment listings.
