Like it or not, Zilllow is changing the face of real estate. I remember when the company IPOd and a lot of us (including yours truly) were skeptical of the business and it's future. As time goes on, one thing is for sure and that is that Zillow captures eyeballs and there's value in that. Glance through this company metrics sheet and that will tell you the story.
How does Zillow make its money? Is it advertising? Subscriptions? Both? Thankfully for investors it's both. And potentially even better, the overwhelming majority of its sales come from subscriptions and marketplace activity versus advertising. In fact about 75% of sales is "marketplace" and 25% is advertising. From the company's 10-K:
"We generate revenue from local real estate professionals, primarily on an individual subscription basis, and from mortgage professionals and brand advertisers. Our revenue has grown significantly since our initial website launch in 2006. For the year ended December 31, 2012, we generated revenue of $116.9 million, as compared to $66.1 million for the year ended December 31, 2011, an increase of 77%."
One thing you'll hear a lot of when we talk about Zillow is "network effect" and given how powerful it can be, it's important to note exactly how it can play into Zillow's overall success. Again, from the company's 10-K:
"Our home-related marketplaces benefit from network effects. As more consumers come to our mobile applications and websites to use our products and services, more real estate, rental, mortgage and home improvement professionals contribute content to distinguish themselves, thereby making our marketplaces more useful and attracting additional consumers."
The bottom line translation is this: As more consumers check out Zillow, more industry professionals see it as a place to be. They see the value proposition in doing business with Zillow. It can actually be complementary to their businesses. It's just one more market that is being brought to the Internet.