Stock prices of Internet software and services provider
) plummeted 7.1% to $84.74 at the closing bell on Aug 19, as the
news of a secondary offering to fund a big-ticket acquisition
caused a flutter in investors' sentiments. The dip in stock price
is particularly worth noting given the fact that the stock has
more than trebled in the current year. Let's dig deeper into the
vagaries of the market.
BRIGHTCOVE (BCOV): Free Stock Analysis Report
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ZILLOW INC (Z): Free Stock Analysis Report
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In order to thwart stiff competition from
) and other real-estate listings, Zillow had been ramping up its
market presence through inorganic growth. In Dec 2012, the
company acquired HotPads.com, a map-based rental housing and real
estate search engine, for $16 million in cash. However, with a
healthy recovery in the housing market in the U.S., Zillow felt
the incessant requirement to expand in urban markets like New
York City and the acquisition of NY-based StreetEasy perfectly
fitted the bill.
Zillow acquired search site StreetEasy for $50 million in cash.
Since its inception in 2007, online real estate search engine
StreetEasy has offered users to view for-sale and for-rental
apartment listings in the city. It provides a platform for
resourceful information sharing among prospective customers. With
about 1.2 million monthly unique visitors, StreetEasy has created
a niche market for itself and has expanded to 34 employees into a
new 6,500-square-foot office on Crosby Street in Manhattan's Soho
Zillow is likely to utilize the sales team of StreetEasy to
augment its advertising and subscription revenues that would
otherwise have not been possible as a standalone company. The
strategic purchase also fortifies its position in one of the
largest U.S. markets, the success of which could work wonders in
strengthening national dominance.
In order to fund the transaction, Zillow announced a secondary
offering of over 5.02 million shares at $82 each. These included
2.5 million shares offered by Zillow and 2.52 million shares
offered by some existing shareholders, proceeds from which will
not be accepted by it. The underwriters also have an option to
purchase up to an additional 753,522 shares from Zillow.
The secondary offering is the second of its kind since its
initial public offering in 2011.
) is serving as the lead book-running manager for the
The stock dilution has dent a hole in investor confidence as is
evident from the fall in share prices. Although the strategic
purchase consolidates its market position, it entails integration
risks. Investors are also likely to be skeptical of Zillow's
acquisition binge. Furthermore, some industry experts believe the
purchase price of StreetEasy is on the higher side and are
apprehensive of the yields from a premium trade-off.
Zillow has a Zacks Rank #3 (Hold), while another player in the
) carry a Zacks Rank #2 (Buy).