As investors ponder whether Zillow Inc (NASDAQ:Z) is overvalued at $70, the big picture needs to be considered. The company has a market value of nearly $2.5 billion and revenue that won’t even cross $200 million this year. While it might be difficult to envision it being worth $10 billion at this point, the company appears to have all the makings of a future that big.
The company operates the leading real estate and home-related marketplace with products that help people find vital information about homes and connect them with the best professionals in the field.
The online sector has precedents with Facebook Inc (NASDAQ:FB) and LinkedIn Corp (NYSE:LNKD) currently at values in excess of $20 billion and a fellow online site TripAdvisor recently surpassing the $10 billion valuation. In addition, several others including Groupon and Zynga reached that valuation before faltering. Heck, even private Twitter is listed with a value of around $10 billion now. With rebounding home sales and Zillow Inc (NASDAQ:Z) leading the online information for real estate sales, what will keep it from not only reaching but also eventually surpassing $10 billion?
Unlike Yelp Inc (NYSE:YELP), most people universally agree that Zillow provides a useful service that local real estate agents and services really want to advertise on. The company, though, faces a competitive environment, as Trulia Inc (NYSE:TRLA) has become a major threat even as Zillow Inc (NASDAQ:Z) became the sector leader years ago. In fact, most investors are probably surprised that Zillow is worth much less than the likes of TripAdvisor or Yelp Inc (NYSE:YELP).
The revenue numbers are actually a lot smaller than most would expect, with Q2 slated to only reach $44 million and the full year to hit $183 million. The growth rate of nearly 57% is spectacular, but the expectations have to be for the online leader in the vast real estate market to be significantly larger.
More importantly, analysts finally expect Zillow Inc (NASDAQ:Z) to be in the black next year with earnings surging to $0.54, though those estimates have declined from $0.83 over the last 90 days. If that can occur on a revenue base of around $250 million next year, the profits should surge by the time revenue hits $1 billion in several years.
The potential exists for a surging market as home sales pick up to more normal levels following the real estate collapse. Trulia Inc (NYSE:TRLA) could impact that growth, as the second leading website expects to hit revenue of $111 million in 2013 while also being profitable. At some point, real estate agents and homebuyers will prefer only one site, and Zillow Inc (NASDAQ:Z) could squeeze out more growth by taking market share.
LinkedIn Corp (NYSE:LNKD) provides one of the better examples of where Zillow could end up regarding valuation if it continues to be the top real estate online destination. The online professional network firm reached under $1 billion in revenue for 2012, and the stock has soared to be worth $23 billion. Even at the much higher revenue base, the company is still growing 54% and trades at nearly 15 times current year revenue expectations. That actually places LinkedIn Corp (NYSE:LNKD) at a higher multiple than the much smaller Zillow Inc (NASDAQ:Z).