Zillow Blazes in Market Debut, But is it Too Hot?

Early today, following their public market debut, shares of real estate and housing data company Zillow tripled in value, reaching $60 after being priced at $20.

By mid-afternoon, the shares had fallen sharply but were still trading at roughly $38 per share as investors, buoyed by a wave of successful internet IPOs, shrugged off its ties to a weak housing market.

The shares have also been boosted by a recovering advertising market, Zillow’s primary source of revenue, its stronghold in a niche segment and deals with companies like Yahoo.

Zillow has exclusive rights to sell real estate agent advertising and certain graphical advertisements for display throughout the Yahoo! Real Estate site.

“Their revenue has increased nicely and their losses have come down nicely. They’re not profitable yet. They have signed a collaborative agreement with Yahoo that will help their bottomline as well,” Scott Sweet, senior managing partner at IPO Boutique, told Reuters.

Zillow — which had 22 million unique users visiting its website and mobile applications in May — halved its losses in 2010 and posted revenue of $30.5 million last year, up nearly 75 percent from a year ago.

Seattle-based Zillow offers rent and house price estimates, called “Zestimates,” as well as real estate data on millions of U.S. homes through its websites and mobile phone applications.

Though Zillow’s shares pared most of their initial gains, their current trading price still provides the company a market value of about $940 million.

But not everyone is convinced that Zillow’s fundamentals should command as much.

“Over the next 8 to 24 months you’ll probably see a big shakeout and the going public effect diminishes and fundamentals come into focus,” Josef Schuster, founder of Chicago-based IPO investment firm IPOX Schuster LLC, said.

Zillow is currently trading at more than 30 times revenue, while its closest listed rival, Move, owner of sites like Realtor.com, trades at just one times revenue.

Zillow was “absolutely not” worth its valuation, David Menlow, president of IPOfinancial.com, told Reuters.

“I am from the school that all of the offerings in this marketplace are just so frothy that it defies any type of sensible valuation modeling,” Menlow, said.

(Reporting by Jochelle Mendonca and Brenton Cordeiro in Bangalore; Editing by Prem Udayabhanu)