Zillow’s IPO: Reflections on Day 1

Zillow's IPO (initial public offering) has been big news. Under the ticker symbol "Z," the stock began trading on the Nasdaq exchange on Wednesday morning. The pre-opening share price was $20, yet when it hit the market, the shares quickly soared to $60. By the end of the day, however, those sky-high values had plummeted back down to $35.77. What does this roller coaster mean for investors? What is the future of Zillow stock?

One thing is for sure: Zillow has crossed the chasm. They took a brilliant idea (offering consumers price opinions on their property value), coupled it to every property in America, and mixed in 90% of the active listings. The result was a sensation. They have had great success monetizing the site's traffic (Yahoo!/Zillow combined traffic of just under 50 million a month) with advertising, as well as a plethora of unique agent and broker marketing services.

Given the level of funding in the bank, Zillow should be able to shore up retention of key employees and continue to invest in their next stage of product development.

What the Pundits Are Saying
Everyone seems to have an opinion about the first day of Zillow's IPO and about the future of the stock. Here are a few highlights:

• Although Zillow is, for the moment, profitable, there's no certainty that the company will remain profitable in the future. This is not necessarily a flaw within the business model, but more likely a reality of today's US real estate market.
• Right now, Internet IPOs are hot. Zillow timed their IPO well in terms of short-term buzz and investor interest. However, some sources suggest that, in the big picture, the timing is all wrong for investors (because of the state of the real estate industry).
• Although traffic to the site is steadily increasing, it's mostly "window shoppers." Thus, many pundits are comparing the Zillow IPO to Pandora. Like Zillow, Pandora saw high stock prices and created plenty of excitement. Yet, despite the sites ample traffic and popularity, Pandora has failed to turn a profit – and stock prices have failed to climb. Could this be the future of Zillow?

The big question for the future of Zillow: how does it keep the real estate community engaged? Zillow delivers significant marketing exposure to agents because of its strong traffic and consumer attractiveness. However, the site is based on inventory it receives from brokers around the country. What if the industry decides it does not want to provide its valuable listing assets free anymore? This is unlikely, as listing exposure on Zillow is demanded by most consumers, but it is a risk nonetheless.

We read that the first day's IPO brought in approximately $70 million. Hopefully, this money will be used to build sustainability and profitability for the site. We can likely expect continued high prices for ticker symbol "Z" if Zillow balances their continued growth investment with testing profitability.