Zillow Is for Real (Estate)

 | Aug 06, 2012 | 3:30 PM EDT
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Tomorrow night, Zillow (Z) will report its latest quarterly earnings. I'm expecting the company to do well.

Analysts are expecting Zillow to earn $0.04 cents a share on $27.4 million in revenue for the quarter, and things are expected to go up from there over the next 18 months. Estimates for full-year 2012 are for $0.28 cents in EPS and $111 million in revenue. The estimates for 2013 are for $0.62 a share in EPS and $159 million in revenue.

The company does real estate listings and is currently worth just over $1 billion in market capitalization and has a trailing price-to-sales ratio of 14x. That might seem high as it is a little above Facebook (FB), although it is much below LinkedIn's (LNKD) 25x ratio.

Also, it's not that expensive when you consider that Zillow is proving itself to be part of the "real" social media companies that have emerged in the last 12 months instead of the "unreal" ones.

On the "real" list so far are names such as LinkedIn, Yelp (YELP) and OpenTable (OPEN) -- all of which have reported strong earnings in the past 10 days.

The "unreal" ones include Groupon (GRPN), Zynga (ZNGA) and possibly Facebook.

What's the difference?

The ones on the first list (with the exception of LinkedIn) are all reasonably priced around $1 billion dollars. They are easier acquisition targets and are showing very strong earnings and revenue growth relative to their size -- unlike, say, Facebook, which is already showing revenue deceleration.

What is also interesting about the "real" list is that all the companies' content works well in mobile. Their services become even more valuable in a mobile setting. If I'm driving around and looking at houses I might buy, I want to be able to pull up all the information about that house on my smartphone or tablet, and I can do that easily with Zillow.

Their business models are not reliant on traditional advertising. OpenTable makes money on transactions when you book a table with one of its featured (read: paying) restaurants. Zillow makes money when you click to contact one of its featured (read: paying) real estate agents about a property you like. Yelp makes money when you click on one of its featured (read: paying) local businesses during a site search. These are much more stable revenue streams than traditional advertising, and they work even better in mobile as more and more users shift away from their PC apps to mobile apps over time. That secular shift is actually hurting Facebook as it saw ads served drop 2% year over year due to this shift.

Finally, this "real" group is focused because it dominates a particular vertical and becomes best-in-breed for it. Zillow owns real estate listings right now.

Expect a pop from Zillow tomorrow night after earnings.

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