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A tepid housing market was thought to be one factor that could negatively affect Zillow, but the company may actually stand to benefit from the turmoil. Homeowners anxious about their house’s Zestimate will probably continue to fuel traffic for the web site. Revenues mostly come from advertising at the moment, but it is not hard to imagine other ways that Zillow might be able to make money in the future.
Furthermore, the company’s current lack of profitability should not be a concern because it won’t be long before income catches up with costs. Overall, Zillow is definitely a strong company, but it is hard to imagine the stock seeing strong long-term gains after such a big opening day. Similar to the experience of LinkedIn (LNKD), look for the market to revise this stock’s value lower once the dust settles. Note that at a price of a little over $35, the company’s valuation is approximately $950 million.
By Larry Gellar, Lead Editor Investment Underground
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