Zillow Offers, the company’s foray into high-tech home-flipping, launched in April 2018. By early 2020, Zillow expects it to be available in 20 markets, including Miami, Nashville and Los Angeles.
Zillow
As Zillow prepares to announce second-quarter earnings results after the market close today, Wall Street is watching for continued growth in its new business and stabilization in its old.
Zillow’s recent earnings announcements have been eventful.
Executives spent most of 2018 trying to convince Wall Street that its foray into buying and selling homes on demand would pay off, and not totally decimate its core business selling ads to real estate agents. Then, when the company released fourth-quarter 2018 results in February, it announced that Rich Barton would reclaim the title of CEO nine years after ceding it to cofounder Spencer Rascoff. (As Zillow’s largest individual shareholder, Barton has a stake worth over $700 million.)
In May, Zillow said it had more than doubled its number of homes sold quarter-over-quarter and planned to be in 20 markets within a year. The stock has been rising since. Zillow’s shares opened trading Wednesday at $48.81, up about 57% since the start of the year but still off their June 2018 high of $65.
“They have laid the foundation for the vision, and now it is about execution,” said Brad Berning, who follows the company for Craig-Hallum Capital Group and has a buy rating on the stock. “I don’t expect any major new announcements to be as disruptive as we have seen the last few quarters.”
According to estimates compiled by Visible Alpha, analysts expect a loss of $0.38 per share on total revenue of $586 million, which would match the low end of company guidance for the quarter. The consensus shows Zillow buying 1,178 homes, selling 772 and 40% of sales coming from homes.
In the first quarter of 2019, Zillow purchased 898 homes and sold 414. Home revenue for the quarter was $128.5 million, with a pretax loss of $45.2 million. Zillow ended the quarter with 993 homes in inventory, worth approximately $325 million. The per-home loss was $3,268, something experts say they will be watching this quarter. Total revenue was $454.1 million with a net loss of $67.5 million.
The three-to-five-year goal is to buy 5,000 homes a month—about 1% of all real estate transactions—and book home sale revenue of $20 billion a year. By that time, the company expects revenue from selling ads to real estate agents to grow to $2 billion, from $1.3 billion in 2018. (Most analysts do not think these targets are realistic.)
Most of the margin from the new business, however, won’t come directly from the spread on houses. Zillow’s plan is to make more profits on auxiliary services like mortgages and title insurance, as well as from selling leads to buyers’ agents. If it’s selling 5,000 houses a month, it expects to finance loans on 1,650 of them.
Zillow’s remodel is happening as the idea of applying tech to residential real estate transactions seems to be gaining momentum.
Last week, Redfin, a tech-driven discount broker—and sometimes Zillow competitor with home purchases—released better-than-expected second-quarter results. The same day, Opendoor, the original on-demand home buyer, announced plans to move to the buyer side of the transaction. And last month, Compass, a brokerage that pairs human agents with software, announced it had raised a $370 million round of funding at a $6.4 billion valuation.
For more on Zillow, read our profile of CEO Rich Barton from July.