Wednesday, July 20, 2011

OMG: Zillow Trades at $60 a share

I wrote a post last week about Zillow, the on-line real estate information company that just went public today. The stock ticker is Z.

When I attended the road show for the deal, I was impressed with the company and its potential. So too were a number of other investors - the meeting room was packed, and the hotel had to set up tables in the hall accommodate the attendees.

At the luncheon, management indicated that it was expecting to price the deal between $12 to $14 a share. Here's what I thought about the offering at those levels:

Zillow has not made any money in its short history. In 2010 it had total revenues of approximately $30 million, and lost about $7 million. Still, traffic at the Zillow site has been soaring, and there is significant revenue potential through both on-line advertising as well as partnering with affiliates such as mortgage companies.

The IPO is offering roughly 10% of the company for $45 million, with the founders and initial investors holding the rest of the shares. Put another way, the company is being valued at around $450 million, or 15x sales, which puts it at a valuation that I will have to take a pass.

Well, shows what I know.

Z opened today at $53, and traded as high as $60 a share, or 500% higher than the price indications of last week (talk about performance!). The trading has been very erratic, however, which is not surprising given the relatively small size of the deal, so who knows where it will close today.

Meanwhile, back at "old tech", Apple reported outstanding results last night. They are barely able to keep up with the demand for iPads. Combined with strong results from other tech companies like IBM and Google, it might appear that techology - which has lagged the general market this year - might be poised for a stronger second half.