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One of the few recent dot-com IPOs to be doing pretty well is taking on some more weight.
Zillow (Nasdaq: Z ) is proposing a secondary offering. The fast-growing real estate website will issue 3.175 million shares of new stock along with 325,000 shares being sold by existing shareholders. Underwriters will also have access to an additional 525,000 shares to cover overallotments.
Shares of Zillow opened 4% lower this morning on the news, and rightfully so. The market rarely sees a secondary offering as a good thing. It's dilutive if the stock is coming from the company, and it sends the wrong message if insiders are bailing. Zillow's secondary offers a little bit of both.
However, let's briefly go over a few of the reasons why now may not be the best time to bail on dot-com darling.
1. Zillow is still a winner
Despite the secondary-related setback, Zillow has still more than doubled since going public at $20 last summer. Think about all of the flashier Internet companies that have gone public since then that currently trade below their IPO prices. Zillow's in a pretty good place.
Rival Trulia filed to go public last month. This doesn't happen if the market perceives Zillow to be a niche-validating winner.
2. If Zillow was a speedster when the industry was in a funk, it's going to be a locomotive now
This morning, Hovnanian (NYSE: HOV ) became the latest homebuilder to report strong quarterly growth. Revenue soared 36%, and a chunky profit reversed a prior loss. Home prices are actually starting to inch higher, and that's going to nudge potential homebuyers who have been straddling the picket fences. Zillow, Market Leader (Nasdaq: LEDR ) , and Realtor.com parent Move (Nasdaq: MOVE ) will be major beneficiaries of the renewed interest, yet Zillow's been growing briskly even during the real estate meltdown. Analysts see Zillow's revenue soaring 73% this year and 46% come 2013. Given the scalable nature of the model, Wall Street's looking for profitability to nearly triple this year and more than double next year.
Why bet against Zillow now?
3. Bet against the company, and you'll regret it on a quarterly basis
I'm a big fan of companies that routinely beat Wall Street's profit estimates, and Zillow is the perfect example. The website operator is a perfect 4-for-4 in blasting through analyst income targets.
Source: Thomson Reuters.
Zillow isn't just narrowly beating the prognosticators. The company's blasting through those estimates.
4. More money isn't a bad thing
Having an extra 3 million shares is dilutive in theory, but let's not dismiss the roughly $120 million in proceeds here. If the company had simply sold these same shares at the time of its IPO, it would have drummed up less than half as much as it's making now.
Zillow intends to use the money raised for general corporate purposes, but it also may use a chunk of the net proceeds for acquisitions and investments that will make the company even bigger and better.
5. Zillow still works
The Zillow model is clicking with both real estate professionals and consumers.
There are now 33.5 million monthly unique visitors on Zillow, 61% more than the monthly average during last year's second quarter. As many Internet titans fret over mobile utilization and monetization, Zillow has jumped right in. There were 168 million homes viewed on Zillow Mobile in July across the company's 13 separate apps.
Real estate agents are also flocking to Zillow. There are now 22,696 professionals paying to be Premier Agent subscribers. In other words, Zillow's success in mobile isn't a matter of finding a way to wedge poorly performing ads into tiny smartphone screens. Agents are already paying for enhanced access.
So don't let today's secondary offering announcement scare you away, just as it spooked investors a month ago, when it originally filed the shelf registration that hinted at the eventual offering.
There's still plenty to like at Zillow.
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