Zillow continues to bolster its position in the online real estate sector, announcing today yet another acquisition.

This time the deal happens to be in the consumer arena, with Zillow agreeing to pay $16 million in cash for San Francisco-based rental search site HotPads. It marks the sixth acquisition for Zillow in less than two years, and follows the company’s recent agreement to gobble up Mortech (which was announced earlier this month).

HotPads, which raised $2.3 million in funding five years ago from Meakem Becker Venture Capital and others, attracted nearly 2.8 million unique visitors last month. (By comparison, Zillow now attracts about 36 million monthly unique visitors).

Spencer Rascoff of Zillow at TechNW

“This acquisition represents a significant step-change for Zillow Rentals, allowing us to dramatically increase the number of leads we send to landlords. HotPads has a younger, complementary and rental-focused audience. Now Zillow will become even more relevant to consumers at the beginning of their real estate life cycle,” said Zillow CEO Spencer Rascoff in a statement. “In addition, by acquiring an amazing engineering team, with a deep understanding of how people search for rentals and become tenants, we expect to accelerate our innovation and monetization of our rental marketplace.”

HotPads employs 19 people, and it will continue to operate in San Francisco where Zillow has a growing presence. It will be combined with Zillow’s rental business, which has also been growing in recent months, including the launch of a new rental marketplace in October and the purchase of San Francisco-based RentJuice in June for $40 million.

In an interview with GeekWire earlier this month, Rascoff said that they’ve evaluated more than 100 potential companies for acquisition in recent years.

“The nice thing about this category is that it has essentially been bereft of an acquirer for the last 10 to 15 years,” he said. “Zillow benefits from a pretty greenfield opportunity here in terms of M&A.”

The acquisition of HotPads comes as Zillow’s stock continues to slip. It has lost 30 percent of its value in the past three months, now trading at about $26 per share. That’s still above the $20 IPO price in July 2011. Zillow employed about 500 people at the end of September.

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  • Realtor

    You can’t make money on Realtors. So you better make it up on Ads.

  • Thomas R.

    Seems like they’re grasping at straws here, searching for a business model to justify their current market capitalization. At first, I was skeptical when Citron Research released their report on Zillow but after their most recent earnings and downgrades it’s hard to dismiss the report.

    I’m curious what management’s expected ROI is on all these acquisitions is. The RentJuice acquisition seemed way overpriced. $40 million for a company that had only two quarters left of runway left seems extreme. And growth seems to be slowing in terms of featured agent ads. Yes there are thousands of real estate agents nationwide but how many are willing to pay for ads and the number of ads you can show is somewhat finite.

    There also seems to be a growing trend of brokerages and MLS networks tightening control of their listing data which will impact the listing inventory of Zillow and Trulia (RedFin was not listed in the articles). Perhaps RedFin was right about their assertion that listings on Zillow are inaccurate and out of date: http://www.inman.com/news/2012/11/21/large-new-york-brokerage-pulls-out-zillow-and-trulia

    Will be interesting to see Zillow pivots in the next few months. They’ve burned through a lot of cash and the company need to start seeing some ROI on its acquisitions and build stronger relationships with brokerages.

    • http://blog.findwell.com Kevin Lisota

      I’ve heard their pitch a bunch of times, and they are certainly not grasping for a business model. I know Spencer will read this, and he can speak more clearly about it than I can, but they are out to grow their marketplace of homes for sale and rentals while at the same time building out back-end tools for the professionals in real estate to manage their business and acquire new customers. I’m certain that they are not shooting for short-term ROI on most of these acquisitions, rather it is part of a long-term growth strategy.

      The trend you mention about brokerages tightening control of listings is more PR bluster than anything. In practice, I see the trend going in the opposite direction, as marketing of listings is following the online eyeballs.

      Zillow is making large investments in brokerage relationships, as evidenced by their recent hires and the Agent Advisory Board. (full disclosure, I’m on that Board)

      • Thomas R.

        Thanks Kevin for the insight. If Zillow can monetize enterprise (tools) for brokerages and agents I think they will have a stronger business model. I can see Zillow easily powering the back-end for brokerages and individual agents with their infrastructure centered around listings.

        However as it stands now, most of the company’s revenue is derived from ads or lead generation. Getting agents and brokers to pay subscription for some sort of service (SaaS) would be huge.

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