Thursday, November 11, 2004

Online realty's hot IPO - ZipRealty


ZipRealty shares surge by 25%

- Kelly Zito, Chronicle Staff Writer
Thursday, November 11, 2004

Shares of Emeryville's ZipRealty, the online discount home seller, soared 25 percent on Wednesday in its Wall Street premiere.

Stock in the firm, which touts its cash rebates to home buyers, finished trading at $16.30 after opening at $13 -- higher than the expected $10-to- $12 range. The offering of 4.55 million shares was led by UBS Investment Bank and Deutsche Bank Securities. The IPO generated $59.2 million, which ZipRealty said will be used for general corporate purposes and potential acquisitions of complementary businesses and technology.

In the five years since it was founded by UC Berkeley business school graduates Scott Kucirek and Juan Mini, ZipRealty has won over a growing number of cost-conscious, Web-savvy consumers.

ZipRealty requires buyers and sellers to register at its Web site, which allows them to view homes posted on the Multiple Listings Service. From there, ZipRealty's business model diverges from the traditional.

For sellers, ZipRealty advertises a 25 percent discount on the agent's commission -- conventionally 3 percent of the total purchase price. Buyers receive a cash rebate of 20 percent of the agent's commission, which is usually 3 percent of the purchase price.

In the first nine months of the year, ZipRealty's revenue reached $44.7 million, up from $33.8 million for all of 2003. After losing money each fiscal year since 1999, ZipRealty posted net income of $2.3 million through Sept. 30. The firm, which has more than 782 real estate agents, operates in about 12 metropolitan regions, including most of the Bay Area.

While ZipRealty has garnered broad media coverage, some industry analysts contend the firm remains a tiny player in the real estate market. In San Francisco, for instance, ZipRealty had 127 sales for the 12 months ended June 30, placing it 18th on the list of brokerages by number of units sold, according to Pat Veling, president of market research firm Real Data Strategies.

What's more, ZipRealty's rise has come during a historic housing boom. When the market cycle inevitably slows down, Veling expects ZipRealty's sales to weaken.

"When the market demands marketing expertise, not just ubiquitous placing of your listing on search engines ... then consumers will be attracted to (ZipRealty's) competitors, knowing (marketing expertise is) what those competitors sell," Veling said.

Company officials declined to comment, due to the so-called quiet period that typically surrounds an initial public offering.

ZipRealty also faces potential changes in the way online home listings are distributed. The National Association of Realtors, a Washington trade group, is pushing a policy that could allow larger, dominant brokerages to withhold listings from firms like ZipRealty.

In the past, ZipRealty executives have argued that the measure is intended to protect customary commission rates and stifle discount brokerages.

This week, the National Association of Realtors postponed the policy's implementation amid federal investigations into the plan on the grounds that it may be anticompetitive.

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