How Zillow Thinks About Acquisitions

The Fool recently explored Seattle. In the video below, CEO Spencer Rascoff introduces us to Zillow (nasdaq: z), telling us how the online home and real estate marketplace works, what he considers its greatest strengths, and what investors should know about it.

Spencer explains why Zillow is so selective when it comes to acquisitions, and what metrics it finds most valuable in evaluating its day-to-day success.

To view the full interview, click here.

Austin Smith: With your huge string of acquisitions, how are you balancing the look for more acquisitions, as opposed to incorporate and really extract all the value from the acquisitions you've made?

Spencer Rascoff: We've always had a very high M&A bar. We looked at at least 100 if not more possible acquisitions in 2012. The deal flow continues to be very solid into 2013, but we're very selective and we certainly have a lot of work to do in the four businesses that we're in; real estate, rentals, mortgages, and home improvement.

Then on both sides of each of those businesses -- there's the consumer side and the professional tool side -- so there's really eight businesses that we're in and we've got a lot of work to do there. Our high bar got a little higher each time we bought a company over the last two years. At this point, we're incredibly selective.

Austin: Over at Fool.com, UVs -- unique visitors -- is one of the key metrics we look at. That's one of the ways that we've started to look at how to maybe evaluate Zillow. But it's also a really, really tough metric to pinpoint, especially with so many different devices. How do you guys really provide an accurate number there so that your 50 million's not really 30?

Spencer: Well, there's definitely some duplication in the unique user count; if you use Zillow on iPad and desktop and iPhone, you're going to show up three times in that unique user number even though you're really only one person. Unique machines is what you're really measuring when you talk about UVs.

Internally though, frankly, the more important metric that we look at is visits, which in that example you would count three times, and if you visited twice on each device you'd be counted six times in the month. We focus much more on visits, which doesn't have this device proliferation problem.

We don't release those metrics, but I really like what I see.

Austin: Fair. Maybe not releasing a hard number, but every company does have their own better way to evaluate themselves than Wall Street or investors realize. What better metrics are there for Zillow? Is it revenue to page visits, which of course we can't get, but we can guess?

Spencer: Let me answer the question another way. If I could only see one or two metrics a day, instead of the hundred metrics that I look at a day, the most important ones would probably be mobile visits and desktop visits, or total visits because, to me, that's a really good leading indicator of a lot of good things.

Premier Agent revenue and mortgage revenue, total revenue, EBITDA, and eventually stock price down the road, etc., all flow from visit growth, audience growth.

Other key metrics for me are probably Premier Agent bookings, so how much revenue did we sell to new Premier Agents or existing Premier Agents that prior day? I look very closely at that metric. That revenue, of course, gets served over a subscription period.

Then I look a lot at usage of our software tools on the B2B side of the business. What percent of our agents are using our CRM? What percent of our property managers are using our tool to syndicate their listings?

What percent of our lenders in Zillow Mortgage Marketplace use the Mortech suite of software tools -- a company that we acquired -- which is a leading provider of lender software, B2B software for the lending industry?

I look at usage rates across our different software tools.