Why Zillow Employees Can't Check Its Stock Price

Why Zillow Employees Can't Check Its Stock Price

The Fool recently explored Seattle. In the video below, CEO Spencer Rascoff introduces us to Zillow , telling us how the online home and real estate marketplace works, what he considers its greatest strengths, and what investors should know about it.

Spencer discusses Zillow's decision to raise revenue guidance and lower EBITDA in its latest earnings report, and why employees are not allowed to track the company's stock price.

To view the full interview, click here.

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Austin Smith: You've set a pretty aggressive North Star EBITDA margin. Correct me if I'm wrong, but I believe it's north of 30%, right, is your range?

Spencer Rascoff: Longer-term, yeah.

Austin: Right. Obviously an aggressive number. What sort of things should we be looking for on the path to that, that would indicate that you're either on or off track?

Spencer: Well, we're in an interesting place right now. When we reported earnings a couple weeks ago, we raised revenue guidance from $168 to around $180 million at the midpoint and we lowered our EBITDA from around mid-to-low 30s for the full year to around $20 million, on a dollar basis, for the full year.

We did it because that extra $10-15 million, we decided to use for advertising. We basically doubled our ad spend for 2013 because advertising was working for us. We had two quarters of ad testing under our belt, we loved what we saw, and we decided to step on the gas in terms of advertising.

That will sacrifice near-term margins in 2013, and we're very, very comfortable with that. We think it sets us up for a future -- unclear whether that future is 2014, 2015, 2016 -- but a future where we're so large that we become even more critical to the industry, even more critical to advertisers, and that's where margin expansion comes from.

The way we're running the business today is, how do we maximize long-term margin potential, long-term shareholder value creation, rather than near-term margin.

Austin: OK. As a guy who's obviously compensated on Zillow's long-term share performance in a meaningful way, how do you balance the day-to-day nature of watching your stock ratios? You've obviously had a great short-term run, but how do you think about that?

Spencer: Well, for starters we have a prohibition, internally, on employees checking the stock price. I know it happens, but it can't happen in public. If I ever walk into a meeting and people are talking about, "What's the stock doing today?" that's verboten.

I set that example, and everybody follows that because, culturally, it doesn't matter. It really does not matter what the stock is at yesterday, today, the next day. What matters is where's it going to be in three years? Where's it going to be in 10 years? Where's it going to be in 20 years?

You can really tie yourself into a pretzel, overly focusing on the near-term. The value of stock kind of goes like this, and the value of the company kind of goes like this. There are going to be times when the stock is above that, and there'll be times when it's below it. The important thing is trying to block out all that noise, which is very hard with the media amplifying that noise, and just focus on the long term.

The article Why Zillow Employees Can't Check Its Stock Price originally appeared on Fool.com.

Austin Smith owns shares of Zillow. The Motley Fool recommends Zillow. The Motley Fool owns shares of Zillow. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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