Zillow Group Inc

  • Exchange: NASDAQ
  • Ticker: Z

Zillow provides online listing services for the real estate market and instant home buying services.


December 20, 2020

Thesis - Zillow is taking property transactions online. Founded by former Microsoft managers, Zillow became the largest website for listing properties in the US. For many years Zillow had a high-margin, advertising based business that allowed customers to view listings online and charged agents listing fees. More recently, Zillow launched Instant Offers, a service where it makes an up-front offer to buy your home and will later sell it on. This represents a significant change for the business, with high initial costs and more in-home operations. The strategy largely came about due to market pressure from new entrants such as Opendoor that have had success with the model. So in this case, Zillow is both the disrupter (of traditional real estate) and the disrupted (from its advertising model). Given its ownership of the main marketing channels, Zillow does have a strong position to operate from. It can use its data and knowledge of consumer demand to inform its purchasing and reselling decisions. Whilst shareholders initially seemed cautious of the change in strategy, the tide seems to have turned and the stock has soared since its March lows.

Leadership - Zillow was founded by Rich Barton and Lloyd Frink, who have a long working history together. Both are graduates of Stanford and worked together at Microsoft and then Expedia. Rich Barton has a strong entrepreneurial background, having founded Expedia and took it public, founded Glassdoor and led it to acquisition, before founding Zillow Group. He recently returned to the role of CEO having spent a number of years as Executive Chairman and is the driving force behind executing the new strategy.

Financials & Performance - In their Q2 results, Zillow announced $657m in revenues. The business is organised into 3 segments: internet, media and technology was $415m (63%), Zillow Offers $187m (28%) and Zillow Mortgages $54m (8%). This highlights that the advertising business still makes up the bulk of revenues. However, these numbers have been effected by covid-19, where home viewings and purchasing were significantly effected. The company gave guidance that expected Offers revenue to rise to between $260 to $280m in the next quarter. Interestingly, the term “Zillow” is searched in Google more than “real estate”, highlighting the company’s brand awareness.

Risks - The business is going through a significant shift and there is no guarantee it will succeed. Particularly given the strategy change significantly effects the margin profile. However the team seem well placed to execute on the mission and are ultimately moving toward a model that customers seem to like - instant, transparent home transactions. It should be noted Opendoor, their largest competitor, are going public via a SPAC.

zillow stock chart