Agents/BrokersiBuyersMortgageReal Estate

Licking its wounds, Zillow bets on a ‘housing super app’

Company lost $528 million in 2021

Rich Barton - HW+
Zillow CEO Rich Barton.

When Zillow stunned the housing world last November by announcing a wind down of its iBuying program – and beginning the process of laying off a quarter of its workforce – the question became what’s next. Suspense built as Zillow has kept a low profile since.

On Thursday, we got an answer – A super app.

“We are focused on building the ‘housing super app’ – an integrated digital experience in which Zillow connects all the fragmented pieces of the moving process and brings them together into one transaction platform,” wrote CEO Rich Barton and Chief Financial Officer Allen Parker in a letter to shareholders.

The ‘housing super app,’ according to investor slides filed with the Securities and Exchange Commission, will provide mortgage pre-approval, “immersive shopping,” facilitate in-person touring, and home financing.

How Zillow would make money from the app was preliminarily discussed in an earnings call that captured a digital age company in transition.

Zillow lost $528 million in 2021, the company reported, compared to losing $162 million in 2020. The loss came amid a historically robust year for U.S. real estate, where housing prices went up, and up and up, and “How to become a real estate agent” was one of the most frequent Google searches.

Zillow did report $8.1 billion in revenue, more than double its $3.3 billion total in 2020. But 73% came from homes sold in the very iBuying program Zillow is shuttering.

Of the over 18,000 homes in inventory when Barton announced the beginning of the end for iBuying, 8,353 are sold.

Zillow has found a buyer for 85% of the remaining properties, the company said. Barton also declared Zillow would be “cash flow positive” after completing the sales. Presently, Zillow reports $3.1 billion in cash and investments and $4.8 billion in debt.

For 2021, the company lost $881 million before taxes on iBuying. The company exited the business model because Barton said that home price forecasting models are too volatile.

Despite 2021 being one of the best years in history for the mortgage industry, Zillow lost $52 million before taxes last year on its mortgage segment, Zillow Home Loans, which posted $246 million in revenue.

The company’s silver lining is a division dubbed “Internet, marketing, and technology,” which generated $545 million in income before taxes and $1.9 billion in revenue. The lion’s share of this revenue came from Premier Agent, Zillow’s popular if polarizing advertising program for buyer’s agents.

On the earnings call, Barton discussed a conundrum that has dogged him since replacing Spencer Rascoff as CEO in 2019 – the yawning gap between Zillow’s popularity and its ability to make money from that popularity.

Of the 6.1 million U.S. home sales in 2021, Barton said, 4.1 million – or 67% — involved homebuyers who utilized Zillow at some point in the transaction process. However: Only 3% — or about 180,000 – of those purchases were monetized by Zillow.

Barton expressed hope that the new app and Zillow’s October purchase of ShowingTime would open up opportunities to monetize more aspects of the home sale.

Unclear is whether the company is on the right monetization track. Ryan McKeveny of Zelman & Associates asked whether Zillow increased the number of transactions it monetizes year-over-year.

Parker replied that he did not have such figures, “But I have seen growth.”

Barton added that part of the problem is that has not been diligently tracking those numbers. After McKeveny’s question, the call wrapped up, but not before Barton’s parting words.

“This is a really fun and entertaining industry, real estate,” the CEO said. “Maybe not quite as entertaining as Netflix, but not too far off.”

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