How does Zillow make money?

Zillow stock has exploded since its 2011 IPO, but where does its money come from?

I’m more than a little addicted to Zillow. I like to spy on my neighbors’ home values and see what’s in their backyards from the aerial view. Turns out, lots of people are addicted to Zillow. In August 2013, Zillow saw 63.7 million unique visitors, an increase of 75% over August 2012. Zillow’s desktop user base now accounts for 34% of the online real estate category, making it the leading online real estate site, according to comScore. And the company’s stock is exploding, up 138% since its 2011 IPO.

So now we ask, how does Zillow make money?

Zillow has a self-described media business model and makes money by selling advertising. The company essentially has two main advertising revenue streams: advertising from its Marketplace, and display advertising from entities that are involved in the process of moving.

Let’s start with the Marketplace. In the third quarter of 2013, Marketplace revenue increased 73% to $40.9 million, up from $23.6 million in Q3 2012.

First, we have the Premier Agent Program. Agents can subscribe to the silver, gold, or platinum programs to get CRM tools, a Premier Agent website, get their photos in listings, and so on. The plans start at $10 a month and go up from there. Premier Agent subscriptions grew 68% year-over-year to 44,749 accounts in the third quarter, with average monthly subscriber revenue coming in at $264.

Under the Marketplace umbrella is Zillow’s Mortgage Marketplace, where potential home buyers can interact with mortgage brokers and brokerage firms. The Mortgage Marketplace lets users see what their potential monthly payment would be, how much they can afford, submit loan requests, and get loan quotes from lenders. In the third quarter of 2013, Zillow’s Mortgage Marketplace received 5.9 million loan requests from borrowers, which exceeds the number of loan requests the Marketplace received in all of 2011. The Mortgage Marketplace revenue grew 120% to $5.7 million in Q3.

The bulk of the Marketplace, however, is dominated by the Real Estate segment, which allows users to browse homes for sale and for rent. Zillow’s Real Estate revenue came in at $35.1 million, a 67% increase over Q3 2012, when Zillow’s Real Estate revenue was $21 million.

And then there’s Zillow’s display revenue, which increased 50% year-over-year in the third quarter to $12.4 million.

Analysts have voiced some concerns over Zillow’s business model, namely because the company spends so much money on marketing. In the second quarter, Zillow spent 70% of its revenue on sales and marketing. Compare that to LinkedIn, which spent 33.6% of its revenue on sales and marketing in Q2 2013.

But haters gonna hate. (Or something.)

The company says it’s eyeing more revenue opportunities, such as monetizing its new Digs feature, which lets users browse through home design ideas, as well as focusing more on rentals.