Shares of Zillow (NASDAQ: Z) have tripled since the company's IPO in 2011 as the real estate company aims to take a bigger bite out of the $10 billion real estate agents spend per year on advertising.
After the stock's recent success, some believe the stock is overvalued. They point to Zillow's stock offering in August and insider selling as points of justification. In the following video, Motley Fool analyst Brendan Byrnes sits down with Spencer Rascoff, CEO of Zillow, to discuss these concerns and find out why insiders have been selling.
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Hey, Fools. I'm Brendan Byrnes, and I'm joined today by Spencer Rascoff who is the CEO of Zillow. Thank you for your time. It's great to see you again.
It's good to see you, Brendan.
I wanted to ask you first about ... There have been a couple of questions from investors that say maybe Zillow thinks, itself, that the stock is overvalued. One, we had the offering back in August which, if you're raising capital, it might be more advantageous to do that when the valuation is higher. And also there's been some insider selling — directors, executives. What do you say to that? Is that a valid concern?
I don't think it's a valid concern. We're so early relative to the size of this opportunity. Just to give you one data point, our Premier Agent business ... which is how we earn most of our revenue ... last quarter was at about $150 million annualized and agents spend around $10 billion a year in total advertising. We have a 1.5% penetration of the opportunity just in that business. So, it feels very, very early to me.
I think to the extent that you ever see executive or director selling, it's part of just your normal diversification, but it's not indicative of anyone's belief in the long-term potential of the company.
How about the offering? How much of the valuation was a consideration there versus going another route for raising capital?
Well, we did a pretty small IPO at about $20 a share and then we did a follow-on, I think, in the low $40s and then another follow-on in the low $80s. I look at those three offerings as sort of a weighted-average, larger IPO. It was a way to raise capital. We're now very well financed — over $400 million in cash — and I don't see any other financing needs on the horizon.
Brendan Byrnes has no position in any stocks mentioned. The Motley Fool recommends Zillow. The Motley Fool owns shares of Zillow. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.