Despite all the volatility this year, the tech IPO market has shown lots of traction. However, most of it has been with larger companies like Pandora (NYSE:P), HomeAway (NASDAQ:AWAY) and LinkedIn (NYSE:LNKD). But are investors ready to take things further and buy up earlier-stage companies?

Perhaps so. Just take a look at Zillow (NASDAQ:Z), which operates a real estate website. After bumping the price range from $12-$14 to $16-$18, the company was able to price its offering at $20. The stock opened at $60, and so far in today’s trading, the stock is at $45.56.

That puts the valuation of the company at $1.23 billion, which certainly is pricey. Keep in mind that it generated only $11.3 million in revenue during the first quarter.

But are the shares still a good buy? Or should investors be careful? Let’s take a look at the pros and cons:

Pros

The database. This is a huge asset for Zillow. The company’s database has extensive information – like photos, listing information and sales data – on more than 100 million U.S. homes.

But with this data, Zillow has created value estimates for homes, known as Zestimates. This has been a big attractor of traffic. At the same time, this information is widely covered in the media to show trends in real estate.

In May, Zillow had 22 million unique users, up about 102% over the year. Much of this was from nonpaid sources.

Multiple revenue streams. Zillow generates fees from display ads, as well as real estate and mortgage referrals. However, a key driver is the Premier Agent program. This is a subscription service for real estate professionals, who can get qualified leads.

Mobile. Zillow was smart to invest in this category early on. Now, the company has rich applications for the iPhone, BlackBerry and Android devices.

Let’s face it: Mobile applications are ideal for real estate. For example, in May, Zillow saw its mobile devices used 8.8 million times.

Cons

Low base. Although Zillow is growing at a rapid clip, the revenues still are relatively small. Thus, the company ultimately might find it more difficult to get critical mass. This could make the stock quite volatile. Consider that since its inception in late 2004, Zillow has generated a total of $79.5 million in net losses.

Real estate market. Unfortunately, the residential segment continues to be stagnant. The company still is experiencing a large number of foreclosures, and unemployment continues to be above 9%. As a result, there could be pressures on the Premier Agent program.

Competition. There are a variety of online real estate operators in the market. Some include Move (NASDAQ:MOVE), HomeGain.com, LendingTree and Trulia. Competition also comes from some large Internet companies like Google (NASDAQ:GOOG).

Verdict

No doubt, Zillow has a stellar management team. This same team helped to create Expedia (NASDAQ:EXPE), which transformed the worldwide travel agency marketplace. Of course, the team wants to do the same for real estate.

And yes, the opportunity is huge. The market size is close to $30 billion.

However, it could be difficult for Zillow to get attention from Wall Street analysts because of its relatively small size. What’s more, a double dip in the real estate market could stunt growth.

So in light of the risks, it probably is better to take a wait-and-see approach to this IPO. As has been the case with other recent IPOs, the stock swings can be stomach churning.

Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.