Zillow to Buy Real Estate Website

Zillow Inc. (Z - Snapshot Report) announced an agreement to acquire HotPads – a rental and real estate search site. The purchase consideration of this deal, which amounts to $16 million, will be paid in cash. The acquisition is projected to close by year end, subject to customary closing conditions.

San Francisco-based HotPads is a reputable real estate website and also has five mobile applications for smartphones. The company was launched in 2005 and currently has 19 employees. The company will be merged into the Zillow Rental Network after the acquisition and will continue to operate from San Francisco.

HotPads has significant web traffic, which will substantially boost Zillow’s prospective clientele. The site recorded about 2.8 million visitors in October 2012, of which almost 70% viewed listings for homes or apartments available for renting. Thus, the acquisition is expected to boost Zillow’s rental business.

Moreover, HotPads caters primarily to the younger population, who are at the starting-point of their real estate life cycle. Thus, the acquisition will make Zillow more appealing to this client base. Moreover, HotPads’ engineering team is well-versed with the online search habits of clients, which should help Zillow attract more clients.

Both the above-mentioned companies share the goal of providing people with adequate means and information to hunt for a suitable home. Toward this aim, Zillow is trying to enhance its rental offerings. Apart from HotPads, the company has acquired various other entities to widen its portfolio of marketing and business services for local professionals.

Earlier this month, Zillow announced its plans to acquire Mortech Inc. – a company that offers software tools required in the mortgage industry. Last month, the company purchased internet and phone-based shopping platform – Buyfolio. Before that, in June, Zillow purchased RentJuice, which formed the basis for the creation of Zillow Rentals.

Apart from inorganic growth, Zillow also tries to innovate and offer new services to its customers. For instance, the company launched a free marketplace and product suite for rental professionals last month. The product offering includes listing on the Zillow Rental Network, which is the largest web-based rental network.

Zillow currently carries a Zacks #3 Rank (short-term Hold). We maintain a long-term Neutral recommendation on the stock. Peer Market Leader Inc. (LEDR - Snapshot Report) also carries a Zacks #3 Rank.