Zillow Testing the Market - But for IPO or M&A?

Includes: GOOG, MOVE
by: The Deal Economy

Common wisdom on the Street suggests 2010 could be one of the best years for tech IPOs in over a decade, with some candidates including household names LinkedIn Corp., Yelp Inc. and Facebook Inc. Now, add Zillow Inc., the real estate search engine, to the list.

The Seattle-based company's COO Spencer Rascoff told Bloomberg that the timing for an IPO is better for 2011. Timing aside, the company is as strong as any of the aforementioned names. Zillow launched in 2005 at the height of the real estate boom, and not only survived the collapse in pricing, but built a strong user base. Its staying power in fact could be attributed partially to the collapse in home prices. Zillow's key feature is free home valuations. People obsessively visit the site to check their home's constantly changing worth, propelling Zillow to 5.2 million monthly unique visitors, making it the second-most popular real estate Web site behind Move Inc.'s (NASDAQ:MOVE) Realtor.com.

So why wait when others are expected to file now? For starters, the Bloomberg article notes that the valuation of Zillow's public peer Move remain depressed. However, if the real estate market climbs out of its hole by mid-2011, Move's shares will likely rise, and Zillow can follow its peers to market.

But maybe Zillow's admission of an eventual IPO is as much about going public as it is about attracting an acquisition offer, notes GigaOM. Indeed, hyperlocal businesses are in demand, and in many ways Zillow falls into that category. To that end, Google Inc. (NASDAQ:GOOG) reportedly had sought to buy Yelp for $550 million last year before the local review site backed away from talks. The same cash would likely satisfy Zillow's venture investors (Benchmark Capital Management Co. LLC and Technology Crossover Ventures) who reportedly valued the startup at $400 million when investing $30 million in 2007.

Additionally, Zillow seems like a perfect fit for Google. The search leader has experimented with real estate search, but its offerings are nowhere near as useful as Zillow's valuation features or aggregated data about taxes, schools and prior sale prices. Instead, Google's real estate search simply superimposed results from local realtor Web sites on to Google Maps results. Plus, Zillow continues to add features, most recently rental listings. Adding Zillow to its portfolio, Google would instantly gain a robust new feature that would keep it ahead of Microsoft Corp.'s (NASDAQ:MSFT) Bing. - Matthew Wurtzel