Billionaire James Packer Bets On Zillow: What Does He Know That Others Don't?

Australia's James Packer has bought a stake in Zillow .  The run up to his picking up the second largest stake 0f 9.4% in the American real estate website has been action-packed, to say the least.

On August 19, just a fortnight before Packer made headlines, Zillow announced that it was buying StreetEasy, an online resource for prospective homebuyers and tenants in New York. Simultaneously, it said that its co-founders Richard Barton and Lloyd Frink and CEO Spencer Rascoff would be among the existing shareholders selling 2.5 million shares of the company as part of a secondary stock offering.

Analysts took the opportunity to see it as a signal for retail investors to press the sell button. After all, who better than insiders to know when to offload a stock? And insiders in Zillow have been booking profits in small but steady lots since the end of last year. Some commentators were particularly acerbic in exhorting investors to sell. On August 21, 2013, MarketWatch columnist John Shinal remarked that not taking profits in Zillow at the juncture was a decision bordering between "stupid greed and greedy stupidity."

So, when news broke that Packer was paying $298 million for Zillow, the biggest question on everyone’s mind was why now? Zillow stock has more than tripled since the beginning of this year, after advancing 23% last year, according to Bloomberg . Its enterprise value at $3.72 billion before interest, tax, depreciation and amortization is 106 times expected earnings over 12 months when its closest competitor Trulia quotes at a multiple of 54. So, for a savvy investor like Packer (he reaped a bounty from earlier technology investments on classified sites like Carsales.com, Seek and PC Tools), what is the imperative to buy right now?

Packer is certainly no novice at the game. The son of media mogul Kerry Packer has been trying to break away from the family business and carve out his own destiny. Recent success with his Macau casino outfit, Melco Crown, (in partnership with Lawrence Ho, the son of casino tycoon Stanley Ho), after a clumsy attempt at running telecom firm One.Tel in Australia and casinos in Las Vegas, has given him a new confidence and a fat wallet.

He clearly wants a second chance in the United States and real estate is seemingly a good bet. Confidence among U.S. home builders is the highest since 2005 and home sales in July at 5.39 million were the highest since November 2009.

The concerns of the billionaire investor are very different from that of the Wall Street analysts, who look at short-term share price movements. Packer has his sight trained on how Zillow could alter the complexion of the real estate market in the long run. After all, Zillow attracts more than 61 million unique visitors every month in the U.S. According to the National Association of Realtors, some 90% buyers in the U.S. now start their real estate journeys on the Web. Between 2001-2012, about 42% buyers found the home they purchased online, according to Bloomberg.

It is fair bet that Packer is betting that real estate will be the same kind of electronic marketplace that has eliminated travel agents and dented the incomes of stockbrokers and car dealers. His sights must be trained on the estimated $69 billion in commissions that could slowly evaporate if Zillow does to real estate what Amazon did to books or Expedia to travel. It could be a long haul, but Packer is not a man in a hurry.