Zillow Inc (Z), Google Inc (GOOG), Facebook Inc (FB): Who’s A Buyout Target?

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Zillow Inc (NASDAQ:Z) has been catching a lot of momentum as the online real estate website continues to collect fees from its real estate listing services. The company provides housing statistics to its users referred to as Zestimates that helps buyers to identify potential arbitrage opportunities between the value of the house and the market value. This helps buyers to determine if they’re buying the property at a discount. Zillow Inc (NASDAQ:Z) also goes a step further by providing information on monthly mortgage payments based on interest rates and down payments. Zillow Inc (NASDAQ:Z) is a calculator, estimator, and listing agent at the same time.

Economic environment

Things are turning around in the property market which should keep investors up-beat on the growth of the company going forward.

Source: Ycharts

The housing market has been able to make a reasonable turn around with home builders gaining confidence to build houses and apartment units. The increase in demand for houses is what is giving Zillow Inc (NASDAQ:Z) additional upside going forward. It also helps to know that the Federal Reserve has no plans of raising the discount interest rate prior to 2015, implying cheap credit for the foreseeable future, which will increase the demand for housing and housing-related services going forward.

Zillow Inc (NASDAQ:Z)Earnings highlights

The company grew unique visitors by 47% year-over-year in the first quarter of 2013. The company followed that positive user statistic with strong growth in premier agent subscribers, which grew by 83% year-over-year. The growth in its professional subscribers is the primary reason for the company’s recent revenue surprise. Analysts on a consensus basis were hoping for $37.4 million in revenue. The company’s recent earnings announcement topped that with revenue growing year-over-year by 71%. The company reported revenue of $39 million for the first quarter of 2013.

Investors are generally willing to buy internet-services companies at a higher multiple to earnings as investors are willing to sacrifice short-term loss of profitability with the future expectation of cost-cutting. Most online services at some point maximize profitability, which is why investors buy heavily into the rapid growth, no income phase of a dot com company, than wait for the company to fully optimize the business in order to generate a profit. This happens on a regular basis with Google Inc (NASDAQ: GOOG) and eBay Inc (NASDAQ:EBAY) being strong examples.

Key take-away: It could be a potential buy-out target

Zillow Inc (NASDAQ:Z) operates a narrowly-defined niche and has been able to build a marketplace around its products and services. The company has been able to establish a strong and respectable brand identity even throughout a period of economic uncertainty surrounding housing. The company has been able to avoid a buy-out by larger web-based properties for now.

Source: Ycharts

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