Zillow
Rich Barton, CEO and cofounder of Zillow
- Zillow Group's revenue more than doubled in 2019 from a year earlier to $2.7 billion. This surge was driven by Zillow's home-flipping business, which was launched in April 2018.
- While Zillow continues to grow its home-flipping business, it is not yet profitable. The company lost roughly $5,000 per home sale on average in 2019, taking into account holding costs, selling costs, and interest expense.
- CEO Rich Barton said that the company is expecting to expand iBuying into 26 markets by mid-year but will focus most of its energy on increasing share in the markets it already operates in.
- Zillow has predicted that this business could bring in as much as $20 billion in annual revenue in a few years. It also projects that one the business reaches scale it could deliver an adjusted EBITDA margin of 200 to 300 basis points.
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Zillow Group's fast-growing house-flipping business brought in a surge of new revenue in 2019, showing the booming growth potential for so-called iBuyer model.
But the company also said that it lost money on every house it sold, highlighting the challenges for operating a pure iBuyer profitably. Zillow, known for its online search engine for home info and Zestimate home pricing estimate tool, has billed the push into home-flipping as a way to round out its real estate offerings to touch every part of the buying and selling process.
iBuyers purchase homes with all-cash offers and quick timelines, renovate and repair the home, and then sell it at a profit. Opendoor, a SoftBank-backed company valued at $3.8 billion, was the first iBuying company, but has attracted multiple competitors. Zillow Offers launched in April 2018 in Phoenix, Arizona, the home of the iBuying phenomenon.
And Zillow's venture-backed competitors raised almost $1 billion in equity in 2019.
Opendoor raised a $300 million Series "E-2" round in March which included funding from General Atlantic, SoftBank, Lennar Corporation, Fifth Wall, GV (Google Ventures) and Khosla Ventures. Offerpad raised $75 million in March from an unnamed investor. Knock, which isn't a strict iBuyer but shares characteristics with the category, raised $400 million in January in a Series B round that was led by the Foundry Group.
Publicly traded competitor Redfin also introduced its own iBuyer in the first quarter of 2017, though it didn't announce the program until its IPO filing in June of 2017.
But as we've reported, house-flipping is a low-margin business and profitability is closely tied to market conditions and the ability to shave off operational costs. Zillow has begun to offer adjacent services, like title and escrow, and also has a mortgage business. All of these adjacent businesses may help to increase Zillow's margins in its Homes business.
Zillow reported that it lost on average $5,026 per home it sold in 2019, which takes into account holding costs, selling costs, and interest expense.
The company on Wednesday evening reported that its overall 2019 revenue was $2.7 billion - more than double its 2018 revenue of $1.33 billion. Zillow Homes alone took in $1.37 billion in revenue in 2019, after bringing in only $52 million in 2018.
Zillow's venture-backed competitors raised almost $1 billion in equity in 2019. Opendoor raised a $300 million Series "E-2" round in March which included funding from General Atlantic, SoftBank, Lennar Corporation, Fifth Wall, GV (Google Ventures) and Khosla Ventures. Offerpad raised $75 million in March from an unnamed investor. Knock, which isn't a strict iBuyer but shares characteristics with the category, raised $400 million in January in a Series B round that was led by the Foundry Group.
While Zillow Homes made 4,313 sales in 2019, the service is not yet profitable. After interest, sales, and holding expenses, Homes lost roughly $5,000 dollars per home sold. Zillow's 2019 net loss was $305.4 million, with Homes contributing to the bulk share of losses. The company's 2019 adjusted EBITDA was $38.9 million.
"We expect to improve the overall margin percentage of Homes on an annual basis," Allen Parker, Zillow's CFO, said on a fourth-quarter earnings call on Wednesday.
Zillow has rapidly expanded in the iBuying world, likely aided by the brand's existing popularity among home buyers and sellers. The company only sold 177 homes in 2018 across four markets. Those sale numbers increased almost 2500% in 2019, as the company expanded into 21 markets.
On the latest earnings call, CEO Rich Barton said that the company is expecting to expand iBuying into 26 markets by mid-year but will focus most of its energy on increasing its market shares in the markets it already operates in.
The fourth quarter of 2019 was the biggest quarter for Zillow Homes yet, with revenue of $603.2 million that is a 57% increase to the third quarter. That's more than $100 million higher than the company's outlook for the quarter.
The company's Q1 2020 outlook expects Homes revenue to increase to $675 million-$700 million.
In its 2018 earnings report, Zillow Group wrote that in three to five years, Zillow Homes will purchase 5,000 homes a month and bring in $20 billion in revenue. It predicts that its internet, media, and technology (IMT) business, which is its largest non-Homes revenue source, will bring in only $2 billion.
Premier Agent, Zillow's lead-generation and agent-partnership business, makes up the largest portion of IMT's revenue, which also includes Zillow's advertising and rental listing business.
The company's shareholder letter predicts that once Zillow "achieves scale," individual homes will deliver an average return on homes sold, before interest expense, of 4%-5%, and the Homes segment's adjusted EBITDA will achieve a margin of two to three percent.
The current losses are within the range Zillow has predicted since launching the product: between a negative 2% to a positive 2% margin.