In the past I wrote equity research on Zillow
(Z - Snapshot Report) and seeing as the
hurricane is slowing the markets I got a chance to re-visit my
model. I updated my estimates for 3Q12 and saw that my charts are
really telling the story of what is going on at Zillow.
For the most part, I believe that Zillow is a revenue story more
than anything else. The key to understanding Zillow is knowing how
they generate revenue, so let's take a deep look at how each segment
has trended over the last few quarters.
From the top down, lets look at the two major components of revenue.
The bigger of the two buckets that collect revenue for Zillow is the
Marketplace segment. It is comprised of mostly of premier agent
subscriptions but also contains revenue from the acquired Diverse
Solutions (agent websites), Rent Juice (rentals) and the revenue
that is generated from mortgages.
Here is the graph for how marketplace revenues have trended over the
last several quarters.
A further break down of the largest component of marketplace
revenues is the number of premier agent subscribers. Zillow
publishes this number every quarter.
Having this number allows investors to break out an average revenue
per user, but this includes the other items that were mentioned
above, so its not a 100% accurate number. Its more about the trend,
and this quarter we will see Zillow give a cleaner number for this
metric. The SEC asked for this further breakdown and Zillow agreed
to provide it. So this graph should just be looked at for the trend
and not the actual numbers as it will change.
The second bucket of revenue comes from advertising on Zillow. The
type of advertising is called display advertising and is common
among most internet sites. Here is a graph of the trend of display
We get more detail from that line item as well as the company
reports the number of unique users that visit the site on a monthly
and quarter basis. Here is the graph that speaks to that trend.
A deeper dive into that segment would be to take the display revenue
and then divide that by unique users to get a revenue per unique
user number. Again, its best to look at this as just a trending
number to look at.
When we look at total revenue we see the a breakdown in the chart
below. It shows how premier agent subscriptions have grown not only
in absolute numbers but how it has affected revenue mix. Over time,
it would not be surprising to see the subscription numbers increase
meaningfully while display revenues should only grow modestly.
Now that you have a better handle on how Zillow generates and
reports its revenue its time chime in with a guess as to where you
expect the revenue to come in at. Here are my estimates for the key
metrics, comment on where you think the numbers will come in when
Zillow reports on November 5, 2012.
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Brian Bolan is a Stock Strategist
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