3 reasons to buy stock in Zillow’s IPO

Zillow’s IPO looks attractive thanks to the company’s focus on social media, mobile apps and a marketing niche with very deep pockets. Here are three solid reasons to consider adding Zillow stock to your portfolio.

With a database chock full of more than 1 million houses, it’s safe to say Zillow’s close to logging data on every house in the country. As of the 2009 census, there were 129,969,653 “housing units” in the U.S. (and that figure includes apartments and mobile homes).

That depth of data has made Zillow one of the most popular Web sites on the Internet. Alexa.com ranks Zillow as the 138th most-visited Web site in the country and the 677th most-visited site in the world. It’s safe to assume that a sizable chunk of the site’s 19 million+ monthly unique visitors are in the market for a house, and that makes Zillow a real estate agent’s wet dream.

On the heels of Zillow’s IPO filing yesterday, here are three reasons to consider adding the company’s shares to your portfolio when they hit the exchange:

1) It’s a buyer’s market? Even as we slog through one of the worst housing markets in decades, revenue at Zillow jumped 74 percent last year to $30.5 million. The company’s still not profitable as it booked losses of $6.8 million last year. Still, those losses are getting smaller. In 2009, Zillow lost $12.9 million. In 2008, the damage was $21.8 million. Should the housing market recover in the next few years, Zillow should quickly vault into the green and stay there for good.

2) Bountiful traffic. Based on March’s numbers (19.4 million unique visitors online and via apps), Zillow’s traffic is on pace for year-over-year gains of more than 90 percent. In a recent post titled Should you invest in a Zillow IPO? I pointed out just how dominate the company is in the real estate listing space:

Zillow’s biggest competition for eyeballs probably comes from Craigslist.org – a free classifieds site that doesn’t even sell ads. On top of that, Craigslist seems to cater more to apartments and rentals. That makes Zillow one of the primary stepping off points for home buyers. It’s getting to the point where it will soon be indispensable to Realtors – if it isn’t there already.

3) Zesty acquisitions. Five weeks ago, Zillow announced that it had acquired Postlets.com. Postlets helps sellers post their properties and rentals on 13 popular classified and social networking sites including Craigslist and Facebook.

Postlet’s had more than 500,000 users as of January 2010, and the site offers a freemium model that could drive up Zillow’s number of paying subscribers. Founded in 2005, Postlets quickly became the de facto tool for agents, property managers and landlords looking for free ways to promote their listings. Expect more acquisitions down the pike as Zillow looks to solidify it’s spot as the Web’s No. 1 real estate listing site.

Despite the company’s promising trends, some investors are scratching their heads about the timing of the IPO.

“There had been a lot of people who were hoping that Zillow, at some point, would go public,” Scott Sweet, senior managing partner of IPOBoutique.com, tells ABC News. “It is not a particularly good time right now.”

Fred’s Best Guess: If you’ve never spent time on Zillow looking up how valuable the homes of your friends and family are, I’d be willing to bet you’ll be just that bored sometime in the future. The verb “Zillowing” will never have the cachet of “Googling” someone, but it’s undeniable that Zillow’s quickly become a leader in the online real estate listing business. The company’s got experienced leadership, too, in CEO Spencer Rascoff who helped Hotwire.com grow itself into a $675 million acquisition in 2003. Expect Rascoff to continue making smart acquisitions that focus on social media. That should help Zillow stay ahead of its competition and continue pulling in ever-larger piles of cash.

Zillow might not be as sexy as a RenRen.com, but it targets a niche with very deep wallets. I expect the company to become profitable quickly and to continue growing rapidly for several years. Couple that with a housing recovery in the next few years, and you’re probably looking at some phenomenal growth rates. All that said, I just don’t see shares in Zillow rising in a straight line – particularly since it may take three or four quarters for the company to turn a profit. Give it three to six months to sell-off after its IPO and buy.

Note: Fred’s Best Guess is just that: a complete guess. It does NOT constitute investment advice and should NEVER be construed as such.

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