Zillow is down 18 percent, trading around $28, the day after the online real-estate company unveiled a weak fourth-quarter forecast that left investors cold.
The issue: Conventional display advertising is growing much more slowly than the company's subscription business, where real-estate professionals pay to put themselves in front of home buyers. That's an intentional strategy, CEO Spencer Rascoff told analysts in a call yesterday, since the subscription business works much better on mobile.
So it may be smart in the long term, but it's hurting revenue growth in the short term, and investors are reacting to the short term.
The company went public in July 2011 at $20. When we recently spoke to Rascoff, he noted that the company—unlike some other Internet companies we might mention—has managed to keep its shares above its IPO price.
But what about Zillow's big secondary offering in September, where it sold nearly 4 million shares at $43—a deal which included some insider selling? All the buyers on that offering are way underwater.
We asked Rascoff for comment but he wasn't available. A spokesperson told us, "Our focus is squarely on the long-term success of the business, and we have continued to deliver record results since we went public last year."
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