Real Estate Site Zillow's IPO Filing Shows Shift in Revenue Sources

In three years, online real estate marketplace Zillow has transformed its revenue model from a heavy reliance on display advertising to a stronger position as a broker of mortgage deals and a seller of subscriptions. The success of that pivot, apparently, is what positioned the company to go public.

Seattle-based Zillow yesterday filed an S-1 to raise $51.8 million, a figure dwarfed by the company’s total venture backing as well as its total losses: since 2004, it’s raised $87 million from VCs and racked up $78.7 million in red ink.

Zillow’s prospectus shows a clear shift in its revenue mix from one primarily based on advertising to a more mixed model where fees and subscriptions are taking over as the major revenue streams. In 2008 the company began offering Zillow Mortgage Marketplace, a subscription-based product connecting borrowers with lenders. In 2009, Zillow earned 22 percent of its revenues from the marketplace and 78 percent on display advertising. Last year the chunk earned on display dropped to 57 percent; marketplace revenues more than doubled. That ratio is likely to continue to shift away from display.



That’s not to say Zillow’s display ad business is shrinking—the business grew by 27 percent this year. But it certainly shows the company has no plans to exist on display alone. In total, Zillow earned $30.4 million last year, a sum that unfortunately doesn’t outstrip costs. The company came in just this side of unprofitable, a factor that hasn’t hindered the IPO performance of other recent VC-backed IPOs. Zipcar, for example, went public last week to great fanfare; its shares surged 58 percent in first-day trading, despite the company having lost $14.1 million in 2010. Clearly, public market investors are hungry for fresh product. Mix that with a six-year-old venture capital investment, and the motivation behind Zillow’s S-1 is clear.

Zillow’s $87 million in venture backing, spread across three rounds of funding starting in 2005, hasn’t been refreshed since 2007, when Legg Mason wrote the company a $30 million check. Prior investors, who plunked down money when Zillow’s revenue stream was so display dependent, include PAR Capital Management, Benchmark Capital and Technology Crossover Ventures. 

Technology Crossover will acquire $5.5 million of the public shares in Zillow’s IPO, according to the S-1.