Spencer Rascoff was CEO of Zillow from 2010 until Thursday, when he was replaced by co-founder Rich Barton. TIM PANNELL FOR FORBES
Zillow Group announced Thursday that CEO Spencer Rascoff is out. He has been replaced by Richard Barton, who cofounded the company with Rascoff and newly appointed executive chairman Lloyd Frink. The move comes as Zillow looks to invest heavily in buying and selling homes.
“We created Zillow Group in 2005 to make the real estate shopping and purchase process easier,” Barton said in a statement announcing the management shuffle. “Much of our original dream is just now becoming possible. We are at an inflection point in this quest, and the time is right to shuffle leadership seats.” Barton, who also founded Expedia in 1994 and cofounded Glassdoor in 2007, was Zillow’s CEO from 2005 until Rascoff took over in 2010.
Rascoff will remain on the company’s board, but will no longer be involved in day-to-day operations. “The world is finally ready for the seamless real estate transaction, and no company is better positioned to deliver,” Rascoff wrote in a letter to employees.
Today most people know Zillow—and its affiliates Trulia, Streeteasy and Naked Apartments—as a place to find out how much their neighbors paid for their homes. In April 2018, the company launched Zillow Offers, an on-demand home selling product. Home owners in seven markets can now solicit purchase offers from Zillow. The company buys the home, makes necessary renovations and list it for sale on the open market. Zillow’s goal is to turn each home in 90-days. It plans to be in 14 markets by the end of the year.
Through December, Zillow purchased 686 and sold 177 homes, the company said in an earnings report also released Thursday. In the fourth quarter, when most of the buying took place, revenue from the homes segment was $41.3 million with a pre-tax loss of $27.2 million. The original listing business and offers business “go together like peanut butter and chocolate,” declared Barton in a call with investors.
However, Zillow broke out the economics of its home buying binge, revealing a razor thin margin relative to the risk and capital it’s putting up. Of the 141 homes Zillow managed to sell in the fourth quarter, it made a profit of just $1,723 per home after buying, renovation, selling and interest costs.
Zillow paid $264,134 on average per home it sold in the quarter, and spent over $20,000 per home on renovation and selling costs. Once interest and holding costs were taken into account, Zillow’s cost per home was $291,518 per home, meaning the $293,241 in revenue it generated per sale amounted to a 0.5% profit margin. Earlier in the year, when housing activity was stronger, Zillow appears to have generated more than twice the margin.
Overall, Zillow expects to generate $100 million-to-$115 million in home sale revenue in the first quarter of this year, and an adjusted loss of as much as $38 million. Total revenue for the quarter is expected to be between $417 million and $443 million, while adjusted losses are expected to range between $1 million and $14 million. Zillow offered full year guidance for all its segments, except its novel home flipping operation. In five-years Zillow claims it can purchased 5,000 homes per month and achieve annual revenue of $20 billion from the business.