The challenge for real estate websites right now is the low awareness in the marketplace and big investments must be made to change this, said Spencer Rascoff, CEO of Zillow.
After reporting a loss in first-quarter earnings of $3.7 million, largely due to costs related to the company's new advertising strategy, its stock traded lower on Wednesday. Rascoff said it was to be expected.
"What the stock is reacting to is that we've made the decision to invest for the long term and operate 2013 at a lower level of profitability, intentionally, than we might have otherwise," Rascoff said on "Squawk on the Street" Wednesday. "We're investing tens of millions of dollars to advertise the Zillow brand."
"Nine out of 10 Americans still don't know the word 'Zillow' and we intend to change that," he said. "We think that's the right decision for long-term value creation."
In this context, Rascoff said that his strategy will focus on growing awareness for his company. "Twenty-seven percent of Americans can't name a real estate website. That is shocking to me. There is no other category on the Internet where 27 percent of Americans can't name a company in the category. We think through advertising we can change that," he said. "This will make Zillow a must-buy for advertisers. It will make Zillow critical for real estate agents."
Over the next 12 months, Rascoff said his company expects home prices to rise by 5 percent, driven by low mortgage rates, low inventory levels, and improved buyer confidence. However, some cities, such as Sacramento, Las Vegas, Phoenix, and San Francisco are "unsustainably high" and ready for a pullback in values, he said.
Making history this week as the first publicly traded company to take questions via Twitter on its conference call, Rascoff said that this move was an experiment. "Some day we'll look back to May 2013 and laugh that it was controversial. This is the way that companies are going to engage with investors more and more. I view it as an early success."
Zillow reported first-quarter revenue ahead of analysts' estimates after subscriptions were boosted by a recovering U.S. housing market, and the company raised its full-year revenue forecast. "It was a great quarter, top to bottom," Rascoff said.
Zillow now expects revenue of $178 million to $182 million for the full year, up from its earlier forecast of $165 million to $170 million.
Analysts on average were expecting $172.3 million, according to Thomson Reuters.
The company posted a net loss of $3.7 million, or 11 cents per share, in the first quarter, compared with a net profit of $1.7 million, or 6 cents per share, a year earlier. Revenue rose 71 percent to $39 million from $22.8 million in the year-earlier period.
Analysts on average had expected a loss of 3 cents per share on revenue of $37.4 million, according to a consensus estimate from Thomson Reuters.
— Reuters contributed to this report.