* Shares soared to $60 from $20 IPO price
* Stock ended up 79 pct at $35.77
* Real estate site has yet to turn a profit
(Adds share volume)
By Nichola Groom and Brenton Cordeiro
LOS ANGELES/BANGALORE, July 20 Shares of real
estate site Zillow Inc (Z.O) skyrocketed in their market debut
on Wednesday, the latest to ride a wave of dotcom exuberance
while stoking fears of lofy Internet valuations.
The six-year-old, loss-making real estate website, which
recorded $30.5 million in revenue last year from providing
housing value appraisals online, soared to as much as $60 -- a
three-fold increase from its IPO price of $20.
Investors shrugged off the company's dependence on an
uncertain advertising and housing market. Zillow's initial pop
in value bested social media player LinkedIn LNKD.N, which
doubled in value in its first day of trade in May.
"The mere fact that LinkedIn and HomeAway AWAY.O did so
very well only helped it, and put even more euphoria into an
IPO that didn't need it," said Scott Sweet, senior managing
partner at IPO Boutique. "It already had the demand anyway."
Zillow is the latest in a string of hot Internet firms --
including LinkedIn -- to create a market frenzy in its first
day of trading. But for some of those stocks, that burst of
enthusiasm vanished rapidly. Chinese social networking site
Renren Inc (RENN.N), for instance, is now trading below its IPO
price after soaring as much as 57 percent in its May debut.
Similarly, shares of online radio service Pandora (P.N) traded
below its June IPO price for several days before rebounding.
Zillow now trades at more than 30 times revenue, while its
closest listed rival, Move MOVE.O, owner of sites like
Realtor.com, trades at just 1 times revenue. Trulia Inc, which
competes with Zillow.com and is backed by Accel Partners and
Sequoia Capital, is also looking to go public. [ID:nN14296030]
Investor nervousness is mounting as U.S. economic growth
sputters. Early 2011 optimism -- nearly 80 percent more was
raised on U.S. equity markets in the first half of this year
than in 2010's first six months -- has given way to warnings of
a second-half slowdown in the pipeline. [ID:nN1E75R28H]
In the tech sector, such fears are particularly relevant
given the dot-com crash of 2000, when the likes of
theglobe.com, VA Linux and Marketwatch.com rose six- or
seven-fold in their market debuts, whipped into a frenzy by day
traders. Many of those so-called bubble babies quickly burned
through their proceeds and subsequently vanished, leaving
investors holding the bill.
But all such concerns went out the window as investors
piled into a stock with a non-existent profit track record.
More than 5.8 million shares changed hands, or more than
one-and-a-half times the 3.5 million shares available for
Zillow, which closed the day up 79 percent at $35.77, 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."
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.
Some observers argue that Zillow's bravura first-day
performance is justified by its long-term potential, especially
with signs of a recovering advertising market, Zillow's primary
source of revenue. They like its strong hold in a niche segment
and revenue-boosting deals with companies like Yahoo (YHOO.O).
Zillow has exclusive rights to sell real estate agent
advertising and certain graphical advertisements for display
throughout the Yahoo! Real Estate site.
The site -- 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.
For a BREAKINGVIEWS column on the Zillow IPO, please click
(Additional reporting by David Gaffen in New York and Jochelle
Mendonca; Editing by Edwin Chan and Bernard Orr)