(Zillow investor presentation)

Zillow Group may be ducking out of the home-buying business. But now it has a new plan to make more money off real estate transactions.

The Seattle company revealed a new “housing super app” strategy as part of its fourth quarter earnings report Thursday. It’s the first earnings report since Zillow announced it was shutting down the company’s ambitious “iBuying” home-buying business.

Investors seemed pleased with the revised strategy, with shares up more than 16% in after-hours trading Thursday.

In a Q4 shareholders letter posted today, Zillow CEO Rich Barton said the company is selling homes “faster than we anticipated at better unit economics than we projected.”

“The wind-down process is running smoothly and efficiently, and we expect it to generate positive cash flow,” Barton said. “We feel even more confident today that exiting iBuying and eliminating the housing market balance sheet risk to our company and our shareholders was the right decision.”

Zillow reported Q4 revenue of $3.9 billion, up 392% from last year (the increase is largely driven by revenue from Zillow Offers), and earnings per share of -$0.42. Analysts expected revenue of $2.95 billion and a loss of $1.15 per share.

“Big swings are core to Zillow, and they are what make our company so unique.”

Zillow surprised the real estate world with its decision to end Zillow Offers, which launched in 2018 and was billed as a way for consumers to avoid the hassle, time commitment and uncertainty of a traditional sale. It projected annual revenue of $20 billion from the new business.

But unpredictability in forecasting home prices proved too tough a task for the company’s algorithm and Zillow wasn’t prepared for “earnings and balance-sheet volatility,” according to Barton in November. Zillow said it would take a $500 million write-down and slashed 25% of its workforce related to the decision.

On Thursday Zillow said write-downs for Q3 and Q4 totaled $405 million, $160 million better than the midpoint of its prior estimated range, thanks to higher home resale prices than expected in Q4. But Zillow still reported a $881 million loss on Zillow Offers for 2021.

Zillow Group CEO Rich Barton. (Zillow Group Photo)

When Barton returned to Zillow as CEO in 2019 — he co-founded the company in 2006 — the longtime tech leader called the shift to focus on home sales the beginning of “Zillow 2.0.” 

“Our vision for Zillow 2.0 remains unchanged,” Barton wrote in the Q4 shareholders letter. “We are moving forward with the strategy to help more high-intent movers find and win their home through digital solutions, first-class partnerships, and easier buying, selling, financing and renting experiences.”

That strategy is centered around what Zillow calls the “housing super app,” described as a digital experience that “connects all the fragmented pieces of the moving process and brings them together on one transaction.”

Barton noted that around 25% of all U.S. homebuyers last year used Zillow to connect with a Zillow Premier Agent, but Zillow only generated revenue on about 3% of total customer transactions. Zillow also said it has more than triple the number of daily active app users than its closest competitor.

That’s where Barton sees opportunity — and a goal to get that 3% share to 6% by 2025.

Zillow said it plans to grow engagement with homebuyers through 3D tours, its Zestimate, the platform’s search functionality, and other services. It also will improve the touring experience through its acquisition of ShowingTime; increase focus on digitized mortgage offerings; and “develop seller solutions by leveraging learnings from iBuying to stand up new, more asset-light services,” Barton wrote.

The company expects the plan to translate into $5 billion of annual revenue with a 45% margin (calculated by EBITDA) by the end of 2025. It said housing-related transaction fees were roughly a $300 billion industry in 2021.

“The size of the prize is large when we become the central integrator — connecting pieces of the fragmented process and turning dreamers into transactors within the ‘housing super app,’” Barton wrote.

In some ways, Zillow is refocusing efforts on Premier Agent, Zillow’s traditional business of selling advertising to real estate agents. Premier Agent revenue grew 13% year-over-year to $354 million in the fourth quarter.

Traffic to Zillow’s mobile apps and websites was flat year-over-year, coming in at 198 million average monthly unique users.

Since the Zillow Offers announcement in November, Zillow’s stock has lost nearly half its value, trading Thursday around $48/share.

“We want to acknowledge the past few months have been challenging for us all — Zillow leadership, employees, and investors — but innovation is a bumpy road,” Barton said. “Big swings are core to Zillow, and they are what make our company so unique. We are excited about the opportunity in front of us.”

Read the full shareholders letter here, or below.


https://www.geekwire.com/2022/zillow-2-0-reimagined-real-estate-giant-reveals-housing-super-app-strategy-amid-ibuying-closure/