Zillow Revenue Soars Amid Faster-Than-Expected iBuying Exit

Zillow revealed Thursday that both its revenue and losses shot up during the final months of 2021, thanks largely to the company’s now-shuttering iBuying business, and that it has a multi-year plan to boost revenue and build a “housing super app.”

The company’s latest earnings report, published after markets closed Thursday, showed that Zillow brought in $3.9 billion in revenue between October and December of last year. That’s nearly five times higher than one year earlier, when Zillow brought in $789 million in revenue. During the third quarter of 2021, Zillow earned $1.7 billion in revenue.

Going into Thursday’s report, analysts had expected Zillow to report $3.01 billion in revenue — meaning the company handily beat forecasts.

Zillow managed to hit such soaring revenue numbers thanks largely to its iBuying business, which is now winding down. Specifically, the report shows that the company’s Homes segment, which includes iBuyer Zillow Offers, brought in $3.3 billion in revenue. The report adds that such a figure “well exceeded our outlook as the wind-down of our iBuying operations progressed faster than anticipated.”

Despite the soaring revenue, however, Zillow also lost just over $261 million during the quarter, which is a reversal from one year prior when the company had a net profit of $46 million.

As was the case with revenue generally, much of that loss happened thanks to iBuying, with the homes segment losing the company more than $342 million between October and December. That’s way up from a loss of just $66.6 million one year prior.

Rich Barton

During a call with investors Thursday afternoon, company co-founder and CEO Rich Barton revealed that Zillow has now sold about 85 percent of the homes it bought through its iBuying business. He also said the company now expects the iBuying wind down to ultimately be cash flow positive.

Barton added during the call that he is now “more confident” that getting out of iBuying was ultimately a “great decision.”

Chief Financial Officer Allen Parker also participated in Thursday’s investor call and said that Zillow finished acquiring its last homes via Zillow Offers in January. (Though Zillow announced its exit from iBuying in November, it had in-the-works commitments to buy homes at the time, and those transactions have now wrapped up.) Parker added that Zillow should have sold off almost all of its home inventory by the end of this year’s second quarter.

Despite the highs and lows of the iBuying business, Barton struck an upbeat tone in the report, pointing in a statement to the company’s internet, media and technology (IMT) segment, which brought in $483 million during the final months of 2021. That was up 14 percent year-over-year.

Zillow’s IMT segment was also profitable during the final quarter of 2021, earning the company approximately $137 million.

Barton called this segment “a rock-solid financial foundation” and “core” part of Zillow’s business.

The report also includes total 2021 numbers, and shows that over the 12-month period Zillow brought in $8.15 billion in revenue, up from $3.34 billion in 2020.  The company’s net loss in 2021 totaled about $528 million, up from $162 million in 2020.

The homes segment, which again includes Zillow Offers, lost $881 million in 2021, up from $320 million in 2020.

Thursday’s report and call with investors also gave Barton and his team a chance to lay out their strategic plan going forward — something many observers have been anxiously awaiting in light of Zillow Offers’ demise. To that end, Barton said during the call that Zillow currently has 3 percent of the market for residential real estate transactions. He went on to note that “we are proud of what we have accomplished,” but said the plan going forward is to capture 6 percent market share by 2025, and to go “meaningfully higher than that long term.”

Additionally, Zillow aims to be bringing in $5 billion in revenue by 2025.

The company is planning a multi-pronged approach to achieve these goals. One of those prongs is home tours.

“Right now,” Barton noted, “it’s super complicated to schedule a home tour so a good deal of home tour demand goes unfilled.”

Barton explained that Zillow wants to change that by building a “digital home tour reservation system” that would streamline the process and convert more Zillow users to actual real estate “transactors.” A key part of this strategy is ShowingTime, the home tour tech startup Zillow acquired last year.  The acquisition was controversial within the agent community at the time, but during Thursday’s call Barton repeatedly indicated that ShowingTime will be a key ingredient as Zillow works to digitize the “archaic, primarily offline” process of buying a home.

“We acquired ShowingTime because we recognized how critically important tours were for the showing experience,” Barton also said. “Tours are where much of the magic happens.”

Barton went on to say that the company will additionally invest in mortgage services and making financing an integrated part of Zillow consumers’ experience. Zillow already provides mortgage services, but Barton noted that up until now that offering has mostly been integrated with Zillow Offers. Zillow’s efforts in the mortgage space had consequently not been focused on “the bigger lever and the bigger opportunity” of catering to the companies massive and engaged user base. With iBuying now going away, however, Zillow wants to offer more consumers mortgage products.

A document for investors that Zillow distributed with its earnings report Thursday further notes that revenue from “other services” — which includes mortgages, rentals, and other products — totaled $609 million. But by 2025, the company wants to grow that number to $1.2 billion.

Both the investor document and Barton during his call mentioned that the ultimate goal is to create a “housing super app.” Barton described the app as an “integrated digital experience in which Zillow brings together” the various moving pieces of a real estate transaction. He also said Zillow has far more users than its nearest competitors, meaning “no company in our category has a stronger claim to hearts and minds.”

Going into Thursday’s earnings report, Zillow stock was trading at just under $48 per share, down slightly for the day. That price was also down compared to the beginning of the year, when shares were trading at over $61, and from a high point of more than $200 one year ago.

After Zillow published its earnings, stock in the company jumped in after hours trading, ultimately settling at more than $55 per share.

Credit: Google

As of the close of the markets Thursday, Zillow had a market cap of about $12.35 billion.

During his call with investors, Barton also said Zillow’s economists were projecting more strength in the housing market over the course of 2022. He said that home prices are being driven up by low supply, as well as by a wave of younger buyers entering the market.

“What’s driving the strength,” he added, “is this kind of millennial tide that’s rising.”

Update: This post was updated after publication with information from Zillow’s earnings report, and from comments from executives’ call with investors. 

Email Jim Dalrymple II

Source link