The following is part of an ongoing series where I unpackage the old S-1's of consumer Internet companies in order to create an index of benchmarks and metrics that might be useful to entrepreneurs and investors. I'll be starting with a variety of consumer marketplaces. Today, we look at Zillow at the time of its IPO (July 2011), a particularly easy one for me since I had the rare fortune of helping to manage their IPO!
Zillow is the leading online real estate marketplace, providing vital information about homes, real estate listings and mortgages. Founded in 2005, Zillow created a large database of homes and used proprietary valuation models to provide home value estimates, or 'Zestimates'. Zillow's marketplace provides transparency for consumers in all things real estate and home buying and provides real estate agents and mortgage professionals with a high quality channel to connect with prospective consumers.
At the time of IPO, Zillow made money in two ways - 1) marketplace revenues consisting of subscriptions sold to premier agents as well as CPC advertising related to Zillow Mortgage Marketplace, and 2) display revenue sold on a CPM basis.
As you can see, Zillow experienced healthy revenue growth in it's early years and was fairly capital efficient, achieving EBITDA breakeven in 2010 just in time for it's IPO. This type of revenue growth and financial profile is somewhat of a common trait for marketplaces like Zillow, Yelp, OpenTable and others. These days, in the private markets we often see YoY revenue growth of 300-500%, though admittedly many of these companies are raising boatloads of capital and have high burn rates. In Zillow's era, marketplaces tended to grow more steadily but kept up that growth for many, many years. Over time, you can see the leverage in the model - gross margins increase over time, while sales, marketing and other operating costs decrease as a % of revenue. This is particularly impressive since Zillow had a huge inside sales force calling on real estate agents and signing them up to the platform.
Another interesting thing to note is Zillow's top-line scale at the time of its IPO. At just $30M of trailing revenue, Zillow went public quite early relative to what we currently see in the private markets. Today, Zillow would probably be raising a healthy Series C or Series D round \rather than gearing up to be a public entity. This is more a comment of the 2010-2012 time period when companies tended to go public relatively early in their life.
Key Performance Indicators
Zillow's KPIs at the time were premier agents and unique users. The Premier Agent program allowed local real estate agents to establish an online and mobile presence on Zillow in the zip codes they serve. Zillow generally sells advertising products to premier agents with different pricing on a per zip code basis. Zillow launched the Premier Agent program in late 2008 and has been growing steadily ever since.
In order to drive the Premier Agent engine, Zillow needed to be a valuable destination site for users. Zillow had to become a viable marketing channel for real estate agents so that agents could shift some of their offline marketing budget into online spend. As Zillow got more users, they were able to sell advertising to agents more effectively and ultimately increase the value proposition and stickiness on both sides of the marketplace.
Zillow raised about $57M prior to its IPO. The IPO priced at $20/sh, valuing the company at $627M market cap, or about 5x forward revenue. Today, Zillow trades at $90/sh and has a market cap of $5.3B. At IPO, the company had 11k premier agents and 17M unique users. Today, the company has over 60k premier agents and 140M unique users. Zillow has been a wonderful story, congrats to Spencer Rascoff, Rich Barton and their world class management team for making it happen!