Coatue Management starts new position in Zillow Inc.

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Dec. 3 2014, Updated 8:01 a.m. ET

Zillow position for Coatue

During 3Q14, Coatue Management added a new position in Zillow Inc. (Z). The stock accounted for 1.01% of the fund’s portfolio for the quarter, which ended in September.

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Overview of Zillow

Zillow operates the leading mobile- and web-based real estate and home-related marketplaces. The company offers complementary brands and products that help people find vital information about homes and connect with the best local professionals.

Zillow’s brands serve the full life cycle of owning and living in a home, including buying, selling, renting, financing, and remodeling. The company also provides a suite of tools and services to help local real estate, mortgage, rental, and home improvement professionals manage and market their businesses.

Zillow generates the following types of revenue:

  • Real estate marketplace revenue comes from sales on the Zillow Rentals site and subscriptions sold to real estate agents through the Premier Agent program.
  • Mortgages revenue comes from cost-per-click advertising geared towards mortgage lenders on the Zillow Mortgage Marketplace site. This includes revenue generated by Mortech, which provides subscription-based mortgage software solutions like product engines, pricing engines, and lead management platforms.
  • Display revenue primarily consists of graphical mobile and Web advertising sold on a cost-per-thousand basis to advertisers. Advertisers mainly focus on real estate industry professionals such as real estate brokers, home builders, mortgage lenders, and home services providers.
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Revenue strengthens leadership position

Zillow reported quarterly revenue of $88.6 million, up 66% over 3Q13. Marketplace revenue increased 77%, while display revenue increased 30% thanks to higher numbers of unique users on Zillow’s mobile applications and websites. Mortgages revenue grew 24% due to an increase in the number of loans requested by consumers on the Zillow Mortgage Marketplace site.

The company reached a record 86 million average monthly unique users during the third quarter of 2014, up 41% year-over-year. In July, traffic broke an all-time record with nearly 89 million monthly unique users, an increase of 45% year-over-year.

Premier Agent advertisers spent a record amount with Zillow in 3Q14. Zillow added 4,059 net new Premier Agent advertisers in the third quarter for a total of 60,877 as of September 30, 2014. Average revenue per advertiser reached a record $349, up from $264 in the same period last year. Premier Agent advertisers who have been on the platform for more than 12 months spent 65% more in 3Q14 than a year ago. Zillow Mortgage Marketplace continues to grow despite overall tightening in the mortgage markets.

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Acquisition of Trulia

Zillow announced plans to acquire Trulia Inc. in a stock-for-stock transaction that’s expected to close in 2015. The combined company will maintain the Zillow and Trulia consumer brands, offering buyers, sellers, homeowners, and renters access to vital information about homes and real estate for free. The company will also provide advertising and software solutions that help real estate professionals grow their businesses.

Partnership Platform grows

Zillow continues to strengthen relationships with agents, brokerages, and multiple listing services (or MLSs). The company recently added the New Jersey, Northern Nevada, and Northeast Oklahoma MLSs to the Zillow Partnership Platform.

Also, Edina Realty—a Berkshire Hathaway HomeServices affiliate and the largest brokerage in Minnesota—recently joined the Zillow Pro for Brokers program, as did Lyon Real Estate in Sacramento, California. There are now 3,200 brokerage partners in the Zillow Pro for Brokers program, which has grown 60% since the end of the second quarter.

Other 3Q14 activities at Coatue Management

Coatue’s third-quarter 13F filing revealed a new position in Level 3 Communications Inc. (LVLT). The fund sold its positions in Salesforce.com Inc. (CRM), 21Vianet Group Inc. (VNET), and Lululemon Athletica (LULU). Coatue also added to its positions in LinkedIn Corp. (LNKD), Baidu Inc. (BIDU), eBay Inc. (EBAY), and Facebook Inc. (FB). The fund reduced its stakes in Charter Communications (CHTR), Liberty Global plc (LBTYA), and CBS Corp. (CBS).

The next segment of this series will discuss the positions that Coatue sold during 3Q14.

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