Zillow CEO Spencer Rascoff on StreetEasy Acquisition

The Motley Fool sat down yesterday with Zillow (NASDAQ: Z  ) CEO Spencer Rascoff for a quick interview after the company announced its acquisition of NYC-focused real estate website StreetEasy. 

We discuss Zillow's rationale behind the $50 million all-cash acquisition, Zillow's growth, and whether the company might have other acquisitions planned.

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Brendan Byrnes: Hi Fools, I'm Brendan Byrnes, and I'm joined today by Spencer Rascoff, who is the CEO of Zillow. Thanks so much for taking the time.

Spencer Rascoff: Thank you, Brendan.

Brendan: So, I wanted to ask you about the StreetEasy acquisition; maybe for someone who's not familiar with it, what StreetEasy does and how it fits into Zillow.

Spencer: StreetEasy rules New York. They are by far the dominant player in the online real estate scene in New York. They have over a million unique users a month, mostly people shopping for apartments or to rent apartments, and they've accomplished something that is incredibly impressive from my perspective, which is they have a local network effect; they have basically all the home shoppers, but they also have incredibly high levels of engagement among real estate professionals, and that local network effect, in a market as important as New York, is very hard to replicate.

Brendan: Do you think it's more important to have the local network effect versus their unique visitors, which I think: 1.2 million per month.

Spencer: Well, you know, the reason they have the audience is because of the incredible product.

Brendan: Sure.

Spencer: They have an extraordinary focus on the New York area, so they've taken the time to build out an amazing product in New York. New York is a very unique place from a real estate stand point and in a lot of other ways, and StreetEasy has cracked the code in New York frankly.

Brendan: So, you also bought Buyfolio, which also a New York focused company. Could you talk about the New York market, specifically what makes it so important, and whether StreetEasy is something you guys plan on focusing in other cities on or just New York?

Spencer: New York is incredibly unique, first of all, because it's the largest real estate market in the country, and, by the way, you can't be the largest real estate company- largest online real estate company on the Web and not be number one in New York. So, that's why it was so important to zillow to acquire StreetEasy and become number one in New York. Buyfolio is a great service, which helps real estate agents and home shoppers communicate and kind of collaborate in their real estate search. So, we bought Buyfolio because it's a B-to-B SAS company, and we made their software free to our Zillow premier agents; StreetEasy is a consumer facing website and has a large consumer audience. So, the two are very complementary to each other.

Brendan: Will StreetEasy be cash flow positive on day one?

Spencer: StreetEasy is already EBITDA positive and cash flow positive, so they have revenue, they have EBITDA, and we'll start consolidating that once we close.

Brendan: Do you guys see this maybe as something you'd only look at in New York, since it's such a large, important market, or would you potentially look at other large cities that have sites, maybe, such as StreetEasy and look at this to expand there, too.

Spencer: There's no other StreetEasy and there's also no other New York. So, certainly, if there were anothe dominant online real estate company in another important city, we'd absolutely look at acquiring it, but StreetEasy is a unique asset and New York is a unique market.

Brendan: Zillow has had a few acquisitions lately. Do you look at Zillow as a growth through acquisition company or an organic growth company?

Spencer: It's an organic growth company. We've made seven acquisitions now, but they've all been relatively small. This StreetEasy acquisition, at $50 million, is our biggest deal. But all these companies have been relatively small. We're a growth company; revenue growing 60% every year; traffic growing 60% year over year; leads to our real estate agents growing 80% year over year; our mortgage business growing 100% year over year. And the vast majority of that growth is organic, because most of these acquisitions have been small, B-to-B SAS companies, where we acquire their product then make it for free- we make it readily available for free to our advertisers.

Brendan: How about the rental aspect of StreetEasy? Was that an important part of this?

Spencer: It was. Rentals is a big focus of ours. We're just starting to monetize rentals. We're already one of the largest rentals websites out there, but we've never monetized rentals before, and so we've just started charging multi-family apartment owners to list on Zillow and HotPads, another company we acquired, and so the StreetEasy acquisition plays really nicely into our rentals monetization.

Brendan: Great! Well, thank you so much for your time. Spencer Rascoff, CEO of Zillow.

Spencer: Thank you.


Read/Post Comments (7) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 20, 2013, at 6:13 PM, bearsnsox wrote:

    "The Motley Fool recommends Zillow. The Motley Fool owns shares of Zillow. "

    how is it ethical for a website to write pump stories for zillow all the time when they OWN SHARES OF ZILLOW???

  • Report this Comment On August 20, 2013, at 6:59 PM, jeff2rey wrote:

    Ok guys get real Are you telling me nobody in the investing community had no knowledge about what was going on. It is not Zillows' fault but people either sold there stock last week around 92 or sold it short knowing full well that when the dust settle with the announcements the stock would be down 10-15% and a good profit for those that sold and probably bought it back 2 days later not to mention the short selling community. The average investor doesn't have a chance.

  • Report this Comment On August 20, 2013, at 7:01 PM, bearsnsox wrote:

    yup the CEO sold half a mil worth on 8/15

    i bet Motley Fool sold alot too, they should disclose how much they sold

    PUMP and DUMP

  • Report this Comment On August 20, 2013, at 10:15 PM, jeff2rey wrote:

    The problem is not with Zillow it is with the crooks that got information illegally about Monday's event and sold at 95 then bought back at 80 or the other group that shorted the stock at 90+ then covered their sale at 80. These are the people the SEC needs to investigate. Zillow is a reputable group and the sale by Rascoff on 8/14 was an automatic sale which meant he had to sell on a particular day despite the price. This is predetermined. The Motley group is also reputable and just got fooled by the people that ran the stock up.

  • Report this Comment On August 21, 2013, at 9:58 AM, bearsnsox wrote:

    the motley fool is not reputable, they write dozens of pump articles for Zillow and they own shares of zillow , that is UNETHICAL and i hope the SEC looks into that

  • Report this Comment On August 21, 2013, at 11:14 PM, techy46 wrote:

    $2.9 billion in market cap for a web site company with $300 million in assets and sales of $154 million on which they lost $11 million? Wow, somebody's smoking the weedie.

  • Report this Comment On August 23, 2013, at 8:30 AM, LakeDaisy wrote:

    Looks like a lot of Yahoo folks got bored and came over here. Nothing informative to say. Simply negativity.

    This average investor is up 164% on Zillow with no intention of selling. And I know for a fact that MF isn't selling either.

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