Unfortunately, whether due to the housing market collapse or the real estate market, Zillow Inc (NASDAQ:Z) is just now emerging as a household name. For as massive as the real estate and housing market remains even after five years of devastation, the market is ripe for a sector leader. A website that is a place where buyers, sellers, and brokers go to obtain listing information on houses for sale and even local mortgage rates and insurance agents.
Other sectors such as social networks, travel, and human resources all ready have firms worth $10 billion or more. Why not the massive housing sector?
Better than expected quarter
Zillow Inc (NASDAQ:Z) reported better than expected revenue and lifted guidance for the rest of the year. The company spent heavily on advertising to successfully drive growth and it helped send total revenue up 71%, and more importantly marketplace revenue surged 87% from last year. The monthly unique users reached a record at 52 million in April 2013, up 63% year-over-year. Even the premier agents segment grew 83% year-over-year to 34,030.
While all of these numbers are great, the company only expects revenue of roughly $180 million for all of 2013. Also, the 52 million monthly unique users is considerably below the recent numbers exceeding 100 million reported both for the top user review site, Yelp, and the photo-sharing service, Instagram. Maybe highlighting the issue the real estate sector faces if a typical user only visits the site when planning to buy or sell a house as opposed to monthly to check out housing values or insurance rates.
Due to the higher investments in marketing, the adjusted EBITDA declined from $5.4 million to only $5.1 million during the first quarter. More importantly EBITDA as a percentage of revenue plunged from a strong 24% back in Q1 2012 to just 13% this year.
The launch of Zillow Inc (NASDAQ:Z) Digs in February might be one of the key products to drive daily use. The Digs site helps consumers through the home improvement marketplace. The ability to attract users that only buy a new house every five years to the website could be crucial for expanded value creation.
Other industry leaders
Considering the size of the housing market it is surprising that the leading marketplace only has a market cap of $1.8 billion and a revenue base of $180 million. In the travel industry, leading user review site Tripadvisor Inc (NASDAQ:TRIP) has a market cap approaching $8 billion and revenue of over $900 million. Of course, these values don’t even compare to the leaders in the travel booking industry. The stock trades at the upper bounds of reasonable valuations at 25x forward earnings with analysts only expecting 18% long-term growth. The company was founded in 2000 so it does have a few years head start on Zillow Inc (NASDAQ:Z).
LinkedIn Corp (NYSE:LNKD) operates an online network for professionals and has surged to a valuation of $20 billion. The company, founded in 2002, expects to generate revenue of around $1.5 billion for the year. Earnings are expected to continue surging, but the stock trades at an enormous 88x 2014 estimates. Incredibly a social network for professionals has surged to the size of nearly 10x that of the leading real estate site built in the same time period.
LinkedIn Corp (NYSE:LNKD) and Tripadvisor Inc (NASDAQ:TRIP) do have the advantage of being the unquestioned leaders in their sectors. Zillow Inc (NASDAQ:Z) though faces pressure from Trullia . The stock might not be as well known, but analysts expect the company to report $111 million in revenue on 64% growth for 2013. This compares close to the $176 million for Zillow.
Bottom line
The online market place for real estate websites appears unlimited at these levels. Both Zillow Inc (NASDAQ:Z) and fellow upstart Trullia remain incredibly small for a market as enormous as real estate. Could the leading site eventually reach the value of Tripadvisor Inc (NASDAQ:TRIP) appears unquestioned and the potential to match the success of LinkedIn Corp (NYSE:LNKD) at $20 billion or more than 10x that of Zillow doesn’t seem too stretched.
Unfortunately a lot of time and distance exists between those two periods with no guarantee that Zillow Inc (NASDAQ:Z) will be the eventual winner in the sector. The stock is considerably expensive at the current levels even after falling 15% since the last earnings report.
Investors don’t need to rush into the stock, as the ideal time to buy will be on the next swoon in the stock like back in November of last year when it plunged below $25 and eventually rebounded to over $62.50. Wise investors will realize that Zillow Inc (NASDAQ:Z) has unlimited potential, but the big gains will only accrue to investors smart enough to buy on weakness instead of chasing the stock higher as the risk exists that Trullia might be the eventual sector leader.
The article Zillow Is Worth How Much? originally appeared on Fool.com.
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