Zillow (NASDAQ:Z) has been around for eight years, leading the online real estate and home related service industry. An interesting fact is that Zillow has only been spending money on advertising since 2013. Prior to that, the company relied on organic growth from social media websites and word of mouth. But since the company started investing in advertising, it has seen tremendous success. Zillow spent $40 million on advertising in 2013 and measured great metrics. A show of confidence is in the fact that it has already spent $65 million in the six months of 2014.
Zillow quantifies the advertisement success by measuring the traffic to its site. From those raw numbers the company differentiates unique users and unique shoppers. The company has seen positive traffic through increased contact by shoppers to the site's premiere agents. For the month of April 2014, the company had 80 million unique users log on to Zillow.com, a net gain of 26.5 million users from a year ago. During the workweek, around 66% of the company's overall traffic comes from mobile devices. That number peaks above 70% for the weekend. Chief Marketing Officer Amy Bohutinsky explains why its service is used primarily on a mobile platform and how the company has geared new ad dollars towards this trend;
"This is the way people shop for homes today. So to fuel this advertising campaign, we did, and continue to do, an enormous amount of research where we talked to buyers around the country, asking them what's important to them when they shop for a home? We heard loud and clear from people. Mobile is a big part of that home search, because they're fitting it in when they're at work, when they're on the bus, when they're sitting in bed at night on their iPad, showing it to their spouse."
Investors should feel good about Zillow's strategy to expand its advertising as the company has seen rising earnings and revenue, and has beat analysts' expectations every quarter since Q3 2012. Currently trading at $118/share, near its all time high, one of Zillow's main revenue streams is the Premier Agent Subscribers who pay to advertise on the website. This division has grown 56% in the last 12 months to 52,968 Premier Agent Subscribers. Further, the average monthly revenue per subscriber is $286, up 10% since Q1 2013. Revenue generated from Premier Agent subscriptions were $46.2 million in Q1, up 77% from Q1 2013. The company's other revenue divisions had huge growth in the most recent quarter as Display Ad revenue was up 62% to 12.9 million and Zillow's Mortgage Marketplace, up 45%, with revenues of $7.1 million. This type of growth can be attributed to the successful advertising campaigns that have gained the confidence of more agents, and increased the buyers and sellers of homes looking for everything from listings to mortgages rates, all of which is part of the service Zillow provides.
Investors should also be looking to the company's strength in spite of a slow start to the real estate market in 2014. The spring selling season has had an unusually sluggish start, in part due to the slump in home sales at the beginning of 2014. However, the industry seems to be picking up again as the Commerce Department Data shows purchases of new homes climbed by 6.4% for the month of May, which is the first gain in three months, to a 433,000 annualized rate. Previously owned homes also saw the first positive gain in the month of April, in which sales rose 1.3%, as indicated by the National Association of Realtors. According to the S&P/Case-Shiller index, property values increased 12.4% from March 2013, over 12 months ago, but despite being way off pre-recession prices, it is important to note the upward trajectory in home values. Michael Gapen, senior US economist at Barclays Capital, elaborates on the price increases, rise in mortgage rates, and tighter lending standards;
"The upward trajectory of prices remains in place, but with a slower rate of appreciation. There's still reason to suspect that home prices will rise as credit availability on the margin, is actually getting better, labour market progress is gaining strength and average income is improving.''
Zillow had record numbers in the last two quarters, with 58.3 million and 66.2 million in revenue for Q4 2013 and Q1 2014 respectively. Further, its bottom line has blown past estimates over the same time period with $0.19/share and $0.02/share beating expectations by $0.13 and $0.10 for the same period. Zillow has shown that not only can it increase shareholder value during a difficult housing market, but that it also has strategically put money to work in advertising and seen huge monetary gains. As the market continues to go higher, Zillow is one company that continues to provide the type of performance that keeps it at number one in its respective industry.
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