Zillow IPO Shares Dropping Like A Rock

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Well, that was fast. After opening at a sky-high $60 a share in its IPO today, 200 percent above where it was priced, the market is bringing Zillow back down to reality. The shares are already 45 percent off that first trade, dropping down to around $33 in midday trading.

Most investors never paid that $60. The shares almost immediately hit the mid-$40s this morning, but they’ve continied to decline. Anyone who chased this hot IPO on opening day was likely to get burned unless they were lucky enough to get some IPO shares allocated to them by their brokers at the $20 IPO price. (IPO shares are priced by the investment banks, but then typically pop on the first trade, which is when most people can start buying them).

The Zillow IPO is testing the waters for smaller public tech stocks. Unlike LinkedIn nor even Pandora, Zillow is a smaller company, with 2010 revenues of only $30.5 million and still not profitable. It was still able to open with a $1.6 billion valuation, but now its valuation is below $900 million.

The market is feeling out it’s valuation. The pent-up demand for growth stocks is meeting the reality of some of these company’s financials head-on. The shares seem to be settling in the low to mid $30 range. As long as they don’t dip below $20, the IPO can still be considered a success. Unless you bought shares this morning.

Update (2:03 PM): Of course as soon as I posted this the shares started trading up again. Now near $39. Who wants to guess where it will end the day?

Update 2: Shares closed at $35.77, down 40 percent from the first trade, but up 79 percent from the IPO price.