Is Zillow the Latest Sign of Tech Bubble 2.0?

| About: Zillow Group, (Z)

By Lucas Scholhamer

In its initial public offering, real estate website Zillow, Inc. (NASDAQ:Z) has become the latest in a string of high-profile internet companies to open public trading with a bang this year. The Seattle-based company set an opening price of $20, and shares have currently settled around $39.00, a 95% increase, after reaching upwards of $60 early on. Zillow chose to limit its offering to just 3.5 million shares in an attempt to maintain a high level of demand for its limited stock, a common move more recently seen in the IPOs of LinkedIn (NYSE:LNKD) and Pandora Media (NYSE:P). The website, which uses automated formulas and publicly available information to calculate and superimpose home values on a satellite map, does not seem to be suffering from the nation’s sluggish housing market.

The high volatility of recent internet IPOs sheds little light on the potential sustainability of today’s gains for Zillow. In May, social-networking site LinkedIn closed its first day of trading up 109% and shares now stand at 117% above its IPO price. On the other hand, Pandora also had a strong opening but has fluctuated greatly on the way to its current price of $17.80, an 11.24% gain. Although it is uncertain whether or not Zillow, Inc., a company that has never turned a profit, is actually worth in excess of $1 billion, CEO Spencer Raskoff has helped lead and Expedia Inc. (NASDAQ:EXPE) to significant success in the past, and his track record bodes well for the company.

All in all, I believe Zillow offers a unique product and a strong management team at a time when finding innovative ways to expand the use of the internet is almost a sure-fire formula for success. However, the unpredictability of this and similar website IPOs will keep me out for now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.