Based in Seattle, Washington Zillow (proposed symbol Z) scheduled a $59 million IPO with a market capitalization of $461 million at a price range mid-point of $17 for Wednesday, July 20, 2011.

CONCLUSION

Zillow is our IPO pick of the week for several reasons.

Growth appears to be accelerating, based on comparing the March quarter with the December quarter: Premier agent subscribers up 32%, unique users up 36%

Gross profit has increased to 84% from 60% since 2008.

According to Inman.com Zillow was the third most popular real estate in May. Yahoo was number 1.

The competitive ‘moat’ that Zillow is surrounding itself with appears to be a real barrier to competition.

Monthly unique users for the three months ended March 2011 increased to 17.3 million, up from 12.7million for the Dec 2010 quarter.

Yahoo strategic relationship

During the three months ended March 31, 2011, Z began to recognize revenues related to its strategic relationship with Yahoo! Real Estate. Under this strategic relationship, Z provides real estate listings to Yahoo! Real Estate and has exclusive rights to sell real estate agent advertising and certain graphical advertising for display on the Yahoo! Real Estate site.

Marketplace revenues showing very good sequential quarterly growth

Positive cash flow from operations for the three months ended March 2011: $3.1 million, 31% of top line revenue.

Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
Annualizing April 2011 qtr	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
Zillow (Z)	$461	10.2	-144	6.1	6.3/FONT>	13%

For metric comparisons with HomeAway (AWAY) based on Zillow’s original filing price range mid-point of $13 see this article: "HomeAway Overpriced Compared to Zillow" http://seekingalpha.com/article/278749-homeaway-overpriced-compared-to-zillow

BUSINESS

. Zillow (Z) is the leading real estate information marketplace. Z provides vital information about homes, real estate listings and mortgages through the Zillow website and mobile applications, enabling homeowners, buyers, sellers and renters to connect with real estate and mortgage professionals best suited to meet their needs. . Z believes it is transforming the way consumers make home-related decisions.

THIRD MOST POPULAR REAL ESTATE WEBSITE IN MAY

According to Inman.com Zillow was the third most popular real estate in May. Yahoo was number 1. Homeaway (AWAY) was number 18.

http://www.inman.com/news/2011/06/22/10-most-popular-real-estate-websites-in-may

RECENT DEVELOPMENTS

• In December 2010, Z began collecting and displaying consumer-generated real estate agent ratings and reviews. By June 9, 2011, consumers had submitted more than 50,000 agent reviews published by Zillow.

• In February 2011, Z launched a strategic relationship with Yahoo! Real Estate through which Zillow provides real estate listings to Yahoo! Real Estate. Z has exclusive rights to sell real estate agent advertising and certain graphical advertisements for display throughout the Yahoo! Real Estate site.

ZILLOW’S DATABASE OF HOMES

Z’s living database covers more than 100 million U.S. homes – homes for sale, homes for rent and homes not currently on the market.

Individuals and businesses that use Zillow have updated information on more than 28 million homes and added more than 60 million home photos, creating exclusive home profiles available nowhere else.

These profiles include rich detailed information about homes, including property facts, listing information and purchase and sale data.

Zillow provides this information to users where, when and how they want it, both through Zillow’s website and through industry-leading mobile applications that enable consumers to access information when they are curbside, viewing homes.

HOME VALUATION ESTIMATES

Using industry-leading automated valuation models, Zillow provides current home value estimates, or Zestimates, on nearly 100 million U.S. homes, and current rental price estimates, or Rent Zestimates, on nearly 100 million U.S. homes.

Zillow believes its products and services present residential real estate data in novel ways that have revolutionized the way consumers search for, find and understand home-related information and make real estate decisions.

REVENUE SOURCES

.Zillow generates revenues from local real estate professionals, primarily on an individual subscription basis, and from mortgage professionals and brand advertisers. . Z’s revenues include marketplace revenues, consisting of subscriptions sold to real estate agents and advertising sold on a cost per click, or CPC, basis to mortgage lenders, and . Z’s revenues also include display revenues from advertising placements sold primarily on a cost per thousand impressions, or CPM, basis.

REVENUE GROWTH FROM…

• Traffic to Z’s website and mobile applications — indicated by the average number of monthly unique users for the three months ended December 31, 2008, 2009 and 2010, of 5.5 million, 7.6 million and 12.7 million, respectively, representing year-over-year growth of 48%, 38% and 66%, respectively;

• Marketplace revenues — due to the launch of Z’s Premier Agent program in 2008 and the commencement of charging mortgage lenders for participation in Zillow Mortgage Marketplace in January 2010. Pricing for the Premier Agent subscriptions varies by zip code. Typical terms of Premier Agent subscription contracts range from six to 12 months. Growth in Z’s subscription advertising product is based on Z’s ability to continue to attract agent subscribers and drive consumer traffic to those agents on Z’s website and through Z’s mobile applications

• Display revenues — resulting from traffic growth and improved productivity of Z’s sales force.

THREE MONTHS ENDED MARCH 31, 2011

. During the three months ended March 31, 2011, Z generated revenue of $11.3 million, compared to $5.3 million in the three months ended March 31, 2010, an increase of 111%. . Z believes this increase is primarily the result of an increase in its Premier Agent Subscribers from 3,438 at March 31, 2010 to 10,710 at March 31, 2011, as well as a significant growth in traffic to Z’s website and mobile applications. . There were approximately 17.3 million average monthly unique users for the three months ended March 31, 2011 compared to 9.3 million average monthly unique users for the three months ended March 31, 2010, representing year-over-year growth of 86%.

YAHOO STRATEGIC RELATIONSHIP

During the three months ended March 31, 2011, Z began to recognize revenues related to its strategic relationship with Yahoo! Real Estate. Under this strategic relationship, Z provides real estate listings to Yahoo! Real Estate and has exclusive rights to sell real estate agent advertising and certain graphical advertising for display on the Yahoo! Real Estate site.

Z anticipates this partnership will have a positive impact on future results of operations, primarily due to an increase in marketplace revenues. Z expects the partnership will continue to drive greater demand for Z’s Premier Agent product.

LARGE AGENT POOL

In 2008, real estate brokers and sales agents held about 517,800 jobs; real estate sales agents held approximately 76 percent of these jobs

Source: US Department of Labor, Bureau of Labor Statistics

Occupational Outlook Handbook, 2010-11 Edition

http://www.bls.gov/oco/ocos120.htm

HISTORY

• In April 2008, Z launched Zillow Mortgage Marketplace. By February 2009, mortgage lenders had provided over one million marketplace loan quotes. Z began to charge mortgage lenders for participation in Zillow Mortgage Marketplace in January 2010.

• In October 2008, Z launched itsr Premier Agent program. By the end of March 2011, Z had more than 10,000 paying Premier Agent subscribers.

• In April 2009, Z released its first mobile application. Z nows operate the most popular mobile real estate applications across iPhone, iPad, Android and BlackBerry.

• In December 2009, Z began displaying rental listings and enhanced this experience with the introduction of Rent Zestimates in March 2011.

EMPLOYEES

As of May 31, 2011, Z had 275 full-time employees.

PRE-IPO OWNERSHIP

Technology Crossover Ventures owns 30 percent of Zillow’s Class A common stock; PAR owns 11 percent, Benchmark Capital owns 19 percent.

USE OF PROCEEDS

. $57 million from sales of 3.46 million shares . Plus $5.5 million concurrent private placement to funds affiliated with Technology Crossover Ventures and to PAR Investment Partners, L.P.. . The concurrent private placement stock will not be registered in this offering For general corporate purposes, which may include working capital, sales and marketing activities, general and administrative matters and capital expenditures.

Zillow	Z, C+, 7.5					Post IPO shares: 27.1mm
Online real estate info				Mrch 3 mos '10	March 3 mos '11	IPO Mkt
Seattle, WA	2008	2009	2010	2010	2011	Cap (mm)
Total revenues ($mm)	$11	$18	$31	$5	$11	$461
. Marketplace revenues	$0	$4	$13	$2	$7	@$17
. Display revenues	$11	$14	$17	$4	$4
Gross profit %	60%	77%	84%	78%	84%
Net income (loss)	-21	-13	-$7	-$3	-$1
Net income (loss) %	-200%	-74%	-22%	-53%	-7%
Cash flow from operations	-$13.0	-$4.2	$2.3	-$0.8	$3.5
Cash flow from ops % of rev	-123%	-24%	8%	-15%	31%
Quarterly results	Dec '09	Mrch '10	June '10	Sept, '10	Dec, '10	March, '11
Total revenues ($mm)	$4.7	$5.3	$7.3	$8.2	$9.6	$11.3
. Marketplace revenues	$1.4	$1.9	$2.6	$3.6	$5.1	$6.9
. Display revenues	$3.3	$3.5	$4.7	$4.6	$4.5	$4.4
Sales & Marketing	$2.7	$3.1	$3.7	$4.1	$4.1	$5.5
Sales & Marketing % of rev	57%	58%	51%	50%	43%	49%
Gross profit %	78%	78%	83%	85%	86%	84%
Operating loss	-$3.0	-$2.8	-$2.0	-$1.5	-$0.5	-$0.9
Operating loss %	-64%	-53%	-27%	-18%	-5%	-8%
Premier Agent subsribers	2,764	3,438	4,777	6,448	8,102	10,710
Unique users, millions	7.6	9.3	10.8	12.1	12.7	17.3
Sequential quarter increase
. Total revenue		13%	38%	12%	17%	18%
. Premier Agent subsribers		24%	39%	35%	26%	32%
. Unique users		22%	16%	12%	5%	36%
Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
Annualizing April 2011 qtr	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
Zillow (Z)	$461	10.2	-144	6.1	6.3	13%
SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	mination	tary	rating
20 is perfect		2	2	2	1.5	7.5