Ad recession keeps potential Zillow IPO off the market

 

Zillow.com is rapidly adding eyeballs, home listings and additional services to its popular real estate site, but says the phenomenal growth it has enjoyed in the two years since launching is not enough to support an IPO any time soon.

"We definitely won't be doing an IPO in '08. Maybe in '09. Who knows," Zillow chief financial officer Spencer Rascoff told the UBS Global Technology Forum Tuesday in Palo Alto, Calif. "The last thing I want to do is be a small-cap IPO that gets very little attention."

His comments hardly surprised investors in the audience, who have seen the IPO window nearly shut this year, but they are revealing nonetheless for what they say about the struggles of even some of the top Internet properties in today's environment. Rascoff was not saying that his company was doing fine and would be IPO ready in any other market. Rather, even though it has built a massively popular Web site that attracts millions of visitors and provides an abundance of data on home values never before available to the average consumer, it is still struggling to make money.

Venture-backed Zillow became a phenomenon almost on par with the young Amazon.com Inc. [AMZN] when it launched a service that catered to people's voyeuristic nature by publishing estimated values of all the homes in a neighborhood. While previous real estate sites focused on actual home listings, Zillow used government records on home sales to estimate values of homes not on the market based on their size and location. The accuracy varies depending on location, but is improving all the time, particularly with the recent addition of new features that let actual homeowners edit information on their own properties, such as details about remodeling that would change the value.

Three months ago, Zillow branched into a major new business, the Zillow Mortgage Marketplace, which lets people seeking a mortgage enter their financial information but not their contact information, so they can peruse offers from mortgage brokers and banks anonymously in a no-pressure environment. Rascoff said that business has already grown to between 10% and 20% of the size of Lending Tree, with virtually no advertising behind it.

The problem? All of Zillow's services are built on an advertising-based revenue model, and it is struggling to sell enough ads.

 

"There's an online advertising recession right now, and we are not immune," said Rascoff. He did not show any signs of departing from the company's advertising-based business model, or its eventual plans for an IPO. But for that, VC backers including Legg Mason Inc., PAR Capital Management Inc., Technology Crossover Ventures and Benchmark Capital, who have collectively put $87 million in to the startup, face an indefinite wait. - Andrea Orr