Zillow Drops on Secondary Offering News (revised) - Analyst Blog
September 06 2013 - 11:08AM
Zacks
Stock prices of Internet software and services provider
Zillow Inc. (Z) fell 7.1% to $84.74 at the closing
bell on Aug 19, as the news of a secondary offering to fund a
big-ticket acquisition caused a flutter in investor sentiment. The
dip in stock price is particularly worth noting given the fact that
the stock has more than tripled in the current year. Let’s dig
deeper into the vagaries of the market.
The Acquisition
In order to thwart stiff competition from Trulia
Inc. (TRLA) and other real-estate listings, Zillow had
been ramping up its market presence through inorganic growth. In
Dec 2012, the company acquired HotPads.com, a map-based rental
housing and real estate search engine, for $16 million in cash.
However, with a healthy recovery in the housing market in the U.S.,
Zillow looked to expand in urban markets like New York City, and
the acquisition of NY-based StreetEasy fit the bill.
Zillow acquired search site StreetEasy for $50 million in cash.
Since its inception in 2007, StreetEasy has offered users to view
for-sale and for-rental apartment listings in the city. It provides
a platform for resourceful information sharing among prospective
customers. With about 1.2 million monthly unique visitors,
StreetEasy has created a niche market for itself and has expanded
to 34 employees into a new 6,500-square-foot office on Crosby
Street in Manhattan’s Soho neighborhood.
Zillow is likely to utilize the sales team of StreetEasy to augment
its advertising and subscription revenues that would otherwise have
not been possible as a standalone company.
Secondary Offering
Zillow announced a secondary offering of over 5.02 million shares
at $82 each. These included 2.5 million shares offered by Zillow
and 2.52 million shares offered by some existing shareholders. The
underwriters also have an option to purchase up to an additional
753,522 shares from Zillow.
The secondary offering is the second of its kind since its initial
public offering in 2011. Citigroup, Inc. (C) is
serving as the lead book-running manager for the transaction.
The Fall
Although the strategic purchase consolidates Zillow’s market
position, it entails integration risks. Some industry experts
believe the purchase price of StreetEasy is also on the high
side.
Zillow has a Zacks Rank #3 (Hold), while another player in the
industry, Brightcove, Inc. (BCOV) carries a Zacks
Rank #2 (Buy).
(We are reissuing this article to correct some inaccuracies.
The original article, issued Tuesday, Aug 20, 2013, should no
longer be relied upon.)
BRIGHTCOVE (BCOV): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
TRULIA INC (TRLA): Free Stock Analysis Report
ZILLOW INC (Z): Free Stock Analysis Report
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