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Zillow Idea Proposal (ZG)

Zillow Idea Proposal (ZG)
 

Will Zillow succeed in shifting the direction of the company to the iBuyer market with its Zillow Offers product?

Report Available: March 21, 2019

 

Blueshift’s ongoing research found ZG launching Zillow 2.0 to disrupt the real estate market again. ZG is going all-in on its Zillow Offers program, buying, selling and financing homes. This allows consumers to sell their home in a few days, find a new one, and get financed all in one place with the click of a button, just as one does when ordering a car with Uber, buying dog food with Amazon, or streaming with Netflix. ZG is adding home loans to its financial reports and is undertaking the origination of its own mortgages as it attempts to make the way people buy and sell homes simpler, again.

 

Observations

  1. ZG surprised the Street during its Q4 earnings call informing investors that it is transitioning from a media company which derives revenue primarily from advertising to a real estate transactional company for home buyers and sellers. The company’s new mission will provide home buyers, sellers and renters with a full slate of services online, including the tools to buy, sell, borrow, and rent on their terms. ZG also announced leadership changes, with co-founder Rich Barton returning to the position of CEO and co-founder Spencer Rascoff, who has served as CEO since 2010, stepping down but continuing to serve on the board of directors.
  2. The future of the company will now largely depend on the iBuyer market which is becoming crowded. Innovative high-tech iBuyer offerings are available from Opendoor, Offerpad, Knock, Perch, RDFN, Keller Williams, RLGY and others. ZG’s long-range plans call for the company to purchase 5,000 homes per month and originate more than 3,000 loans per month which is expected to produce annualized revenue of $20 billion in the Homes program.
  3. After testing the Zillow Offers program in Phoenix, Las Vegas, Atlanta, Denver, Charlotte, and Raleigh in 2018, ZG announced aggressive expansion plans with Zillow Offers becoming available in Houston, Riverside, Calif., Dallas, Miami, Minneapolis-Saint Paul, Nashville, Orlando, and Portland in 2019.
  4. A noted real estate blogger’s early assessment of the iBuyer trend and Zillow Offers specifically, is that it is less work for more money for the seller. ZG’s program also makes more for the real estate agent. His breakdown of a Zillow Offers deal vs. a traditional deal shows a seller netting $244,496 selling with a Realtor vs. $245,645 selling to Zillow with less time and effort involved. He added, “If that’s not a gobsmacker, a gamechanger, a paradigm shift, insert-other-hyperbolic-buzzword-here, then I don’t know what is.”
  5. ZG reported Q4 results that beat both EPS and revenue estimates. Revenue was up 29%, though Premier Agent revenue continued its deceleration with only 11% growth, a trend that started in the third quarter with Premier Agents cancelling their advertising accounts at an increasing rate. ZG responded with some changes to the program and now expects recovery and reduced churn in the second half of 2019. The Homes segment, which features Zillow Offers, generated $41.3 million in Q4, and included the purchase 499 homes and 141 home sales. As of December 31, 2018, ZG held 509 homes in inventory worth $162.8 million.
  6. Blueshift’s Oct, 24, 2018, report found that Zillow Offers is not expected to become a significant growth driver for the company. The program is only in six markets and available through chosen partner agencies, and iBuyer transactions are expected to be a small percentage of the total real estate market. ZG’s growth could be threatened by the deterioration of its lead quality and quantity, the high cost of its leads, Premier Agent ZIP code saturation, poor customer service, and poor treatment of Premier Agents. Among 12 Premier Agents and three agency executives, ZG budgets are expected to be reduced or eliminated for six and to be flat for eight. These findings differ widely from sources’ mixed but positive-leaning comments in Blueshift Research’s June 7, 2018, report. As a result, the rating was downgraded from 3.5 to 2.5.

 

Will ZG revolutionize the real estate industry with its Zillow Offers program? How are agents reacting to ZG’s Zillow Offers? Will Premier Agents continue to spend with ZG or will Zillow Offers push them out? What percentage of home buyers and sellers can the iBuyer trend capture? Is the $20 billion annual revenue run rate projection by ZG in the next 3 to 5 years realistic for Zillow Offers? How will ZG’s acquisition of a mortgage company impact the real estate industry and the Zillow Offers program? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Zillow Premier Agents, Real Estate Agency Executives, Real Estate Investors, and Industry Specialists.

 

Companies: Zillow Group Inc. (Z/ZG), Realogy Holdings Corp. (RLGY), Redfin Corp. (RDFN)

 

Research Begins: March 4, 2019

 

To see other ideas Blueshift Research is currently working on, please click here.

 

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