2016 IPO Prospects: Houzz May Unveil The Curtains

An IBISWorld report had pegged the US interior design market to be worth $12 billion in 2015. Overall, the home improvement market is expected to be worth about $350 billion-$500 billion, growing 6% annually. According to a State of the Industry survey published by online vendor Houzz, more than half the interior decorating businesses expect revenues to grow by more than 10% and nearly a third of them expect revenues to grow by more than 15% in 2016.

Houzz’s Financials

Palo Alto-based Houzz came about when designer couple Alon Cohen and Adi Tatarko realized how frustrating the process of remodeling a house can be when one has to refer to magazines and home professionals. The absence of a network that could help them connect and collaborate with design-focused professionals made things difficult. The duo set up Houzz as a website focused on the DIY home remodeling community. Soon, it became an online portal that offers a design community focused on social network, a content discovery, and an e-commerce site for consumers. Today, Houzz has over 35 million unique monthly users with more than 4 million home professionals.

Houzz earns revenues through advertising of products, premium listing of professionals, and a marketplace commission. Since it is a privately held company, Houzz’s financials are not known. The company was bootstrapped till 2011 when they raised their first $11.6 million funding round from Sequoia Capital at an undisclosed valuation. Overall, Houzz has raised $213.6 million from investors including Sequoia Capital, DST Global Solutions, GGV Capital, Kleiner Perkins Caufield & Byers, New Enterprise Associates, Oliver Jung, Oren Zeev, T. Rowe Price, Comcast Ventures, David Sacks, Kleiner Perkins Caufield & Byers, Paul Hsiao, Amos Wilnai, Don Katz, Gary Ginsberg, Jeff Fluhr, Mike Chalfen, and Oren Dobronsky. Its last funding round was held in October 2014 when it raised $165 million from Sequoia Capital at a valuation of $2.3 billion. A year before that, Houzz had been valued at a comparatively modest $350 million.

Houzz’s Growth Plans

While home decorating remains the key market that Houzz caters to, it is also diversifying into other complementary offerings. Last summer, Houzz acquired GardenWeb from NBC Universal at an undisclosed sum. GardenWeb is a garden and home community discussion site. At the time of the acquisition, it was hosting over 14 million posts across 400 discussion topics and 2.8 million discussion threads.

Many expect Houzz to go public soon. But as of last year, Houzz’s management wasn’t interested in listing and instead was focused on expanding international presence and was not in want of funds. Besides the US, Houzz’s offerings are available in Germany, Australia, Russia, UK, and Japan. The company is expected to be evaluating other APAC options for growth.

Inspired by Houzz’s success, a few other sites have come up as well. Notable amongst them is Porch, which offers Houzz-like inspiration pages and helps manage home improvement projects. Since it was founded in 2013, Porch has expanded to a service that features 132 million home projects supported by 3.2 million professionals and a tie-up with Lowe’s.

IPO Prospects

It’s hard to say without any financial disclosures whether Houzz would have a successful IPO if they listed in 2016. Content-driven commerce is a trend that investors have been very keen on lately, and Houzz speaks to that trend, hence the high levels of funding and valuation. That, unfortunately, doesn’t mean that the company has sustainable fundamentals. We have to wait and see whether it does or not.

This segment is a part in the series : 2016 IPO Prospects