Shares of Zillow fall after SEC revenue inquiry

It is shaping up to be another rough day on Wall Street for Zillow, the Seattle online real estate company. Shares of Zillow dropped more than four percent — and were off as much as seven percent earlier today — after the Securities and Exchange Commission inquired about how the company reported revenue.

Bloomberg reports that a SEC letter from August 30th questioned why the company didn’t report the percentage increase in the average price paid for Premier Agent subscriptions in a recent report: The SEC letter notes:

We note from your disclosures on pages 39 and 41 that total marketplace revenue increased 238% from fiscal 2009 to 2010 and 219% from fiscal 2010 to 2011, which  appears to indicate a decreasing trend in the overall growth for this revenue stream.  However, based on the information provided in your response to comment 2, it appears that your Premier Agent subscription revenues have experienced an increasing trend in revenue growth. While we note that the company does not currently consider your  Zillow Mortgage Marketplace revenues or the changes in such revenues to be a material revenue stream, to the extent that changes in such revenues are masking positive growth trends in your Premier Agent subscription revenues, it would seem that a separate  discussion of these revenues streams would be meaningful to investors. In addition, it is unclear how useful information regarding the number of subscribers to your Premier Agent program is without also disclosing the related revenues. Please explain.

Zillow said it has resolved the issue with the SEC, and Barclay’s called the inquiry “routine” and “immaterial” adding that the stock drop was an “overreaction” to an issue that was resolved 30 days ago.

Zillow said the SEC inquiry was a “common occurrence for public companies.” It added in a response to GeekWire:

The SEC writes letters of comment for most 10-K filings. This letter was in response to an early 2012 10-K filing submitted by Zillow, and we have since responded to the SEC’s satisfaction. The SEC has a statutory requirement to review issuers’ 10-K filings no less than every three years. The comment letters resulting from such reviews are made public 45 days after they have been resolved.

Last week, Zillow’s shares sunk after a researcher who specializes in short sales put out a blistering report on the company’s prospects, saying that its business model has never worked.

Even with the two significant stock drops, Zillow’s shares are still trading at nearly double its $20 per share price from the July 2011 IPO.

In other news, Zillow and Trulia have asked a federal court to push back Trulia’s response time to November 19th in the patent infringement case between the companies. Zillow filed a patent suit against Trulia last month, just days before it completed its own IPO.