ZipRealty Inc. plans to hire as many as 700 agents this year as it expands in eight to 12 markets including Denver and Jacksonville, but expects to post after-tax losses of between $6 million and $9 million to fund the effort.
ZipRealty lost money from 2001 to 2003, first posting a profit of $3.2 million in 2004. Net income totaled $20.5 million in 2005.
In releasing preliminary fourth quarter results and guidance for 2007 Thursday, the Emeryville, Calif.-based company said the expansion could boost revenue to $110 million, up from $93.4 million in 2005.
The company reported it expects fourth quarter 2006 revenue will total $23 million, up from $21.6 million for the same quarter 2005.
ZipRealty said it will spend $10 million to $13 million to expand in Denver, Jacksonville, Naples, Tucson, and four to eight other undisclosed markets.
The company had previously announced it would move into six new markets in 2007. The accelerated growth plan will allow ZipRealty to achieve greater economy of scale buying leads and advertising at the national level, said Chief Executive Officer Richard Sommer.
“We believe this strategy will get ZipRealty to sustainable profitability quicker,” Sommer said. While the rest of the industry is pulling back and reducing expenditures, Sommer said investing in a down market is “not only prudent, but a good investment of capital.”
ZipRealty expects the expansion will cost $500,000 to $1 million per market, and that it will take 12 to 18 months for each to become profitable. Sommer said ZipRealty has already achieved profitability in three of the four markets it expanded into in 2006 — Tampa, Orlando and Austin — and expects new markets to generate a 20 percent to 40 percent return on investment within two years.
Other markets ZipRealty is already active in include Atlanta, Baltimore, Washington D.C., Boston, Chicago, Dallas, Los Angeles, Orange County, Phoenix, Scottsdale, Sacramento, San Diego, San Francisco, Seattle, Las Vegas, Houston, and Miami.
The estimate that the company will post a $6 million loss in 2007 assumes an expansion in eight new markets and relatively flat growth in the housing market, said President Pat Lashinsky. ZipRealty could lose as much as $9 million if it expands in 12 markets and housing sales remain slow.
“We believe that ZipRealty’s business model and management team are fully capable of executing the accelerated expansion effort,” Lashinsky said. “As we’ve said all along, we have a significant opportunity in the $60 billion dollar residential real estate market and we’re pursuing it with a well thought-out plan.”
The company expects to grow to 2,200 and 2,500 agents by the end of the year, up from 1,800 agents at the end of 2006.
ZipRealty is investing heavily in leads this quarter to give agents a jump on the seasonal increase in home sales each spring, and will spend more training new agents in 2007.
The company hopes to boost agent productivity from 0.6 to 0.7 transactions per month, generating revenue of $6,000 to $6,500 on each deal.
Lashinsky said that although ZipRealty has done a good job teaching agents how to use its technology, future training efforts include a greater emphasis on sales techniques.
ZipRealty agents will get more training in negotiating short sales, he said, because such transactions are becoming increasingly common and many in the industry have had no experience with them.
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