Z-Zillow Group

[MrB]

I'm slightly surprised that there is no thread for Zillow, unless I searched incorrectly.

 

Surely the company needs no introduction, but if you're the only person that's not heard of it then here goes.

Zillow runs the largest real estate portal business in the US. Currently valued at $9Bn, which is 8.2x revenues and the company has not turned a profit for the last five years, although it generated FCF of $180m in 2017, which values it at P/FCF of 50x. 2017 was the first year where the company generated meaningful FCF. Me thinks 2017 marked an important turn. Me thinks the company started to monetize and if the gold standard of the industry (Rightmove in the UK) is used as a proxy, which sports a 59% net margin then Zillow is selling at 15x earnings whilst growing revenues at 27%. Zillow's revenue currently makes up 1.4% of the US commision pool compared to Rightmove's 6% of the UK pool, which is one way of saying Zillow has an attractive runway. That is the basic (valuation) story.

 

The following is a good start to understand the industry.

http://www.mikedp.com/articles/2017/9/25/2017-global-real-estate-portal-report

http://www.mikedp.com/

 

[Jurgis]

I had a tiny position, but sold it on the announcement that they are starting to speculate on flipping houses.

[black-dog]

The housing thing's a very strange move -- Zillow's origins include a very early attempt to make house sales an online auction, which failed, after which they've always said "we understand the value of real estate agents, we're here to support them" including building a revenue model around putting agents on property listings, tools for them, and all that.

 

For them to be getting into dealing in real estate directly is a pretty shocking boundary crossing (though really, it's a "curse your sudden but inevitable betrayal!" moment).

[Spekulatius]

It is dangerous to compete with your customers. In a way, Zillow will then become more like Redfin, which is basically a RE broker with a Web Portal. I actually think that Redfin’s website and app is better, although Zillow updates status changes faster. I put our house on the Market and got an alert from Zillow, before our broker sent out the email that the listing is active

Gambling  by flipping house is a very risky move. It could consume a lot of capital and they have to compete with locals that should now the market and the intricacies of hoe to fix houses better than they do.

[cameronfen]

Thanks for this thread.  I would have never thought to look at Zillow.  I agree with all the points esp regarding house flipping.  To provide a devils advocate position (not sure what I believe) but as a data scientist, you'd be surprised at how much money good data can make you and while Zillow doesnt quite have a monopoly on data, they certain are one of the few players that have as much data on the real estate as they want. 

[benchmark]

It is dangerous to compete with your customers. In a way, Zillow will then become more like Redfin, which is basically a RE broker with a Web Portal. I actually think that Redfin’s website and app is better, although Zillow updates status changes faster. I put our house on the Market and got an alert from Zillow, before our broker sent out the email that the listing is active

Gambling  by flipping house is a very risky move. It could consume a lot of capital and they have to compete with locals that should now the market and the intricacies of hoe to fix houses better than they do.

 

I use Redfin, which has a better portal and app, and their data are cleaner as well. I also like redfin's business model better, eventually you don't need a broker for your real estate transactions.

[MrB]

The housing thing's a very strange move -- Zillow's origins include a very early attempt to make house sales an online auction, which failed, after which they've always said "we understand the value of real estate agents, we're here to support them" including building a revenue model around putting agents on property listings, tools for them, and all that.

 

For them to be getting into dealing in real estate directly is a pretty shocking boundary crossing (though really, it's a "curse your sudden but inevitable betrayal!" moment).

The fact that they've done this in Phoenix might indicate that it is a reaction to the latest slew of companies that are trying to disrupt the real estate agent market in general and specifically Opendoor & Offerpad that focus on Phoenix. Opendoor has been getting good traction and as has been suggested here, Z has been down this road before. They have good data and knows how to crunch it so in light of this it might seem less strange.

[MrB]

It is dangerous to compete with your customers. In a way, Zillow will then become more like Redfin, which is basically a RE broker with a Web Portal. I actually think that Redfin’s website and app is better, although Zillow updates status changes faster. I put our house on the Market and got an alert from Zillow, before our broker sent out the email that the listing is active

Gambling  by flipping house is a very risky move. It could consume a lot of capital and they have to compete with locals that should now the market and the intricacies of hoe to fix houses better than they do.

You make some interesting points. Generally speaking Z owns the relationship with the buyer and seller, because Z is the first stop. Buyers and sellers insist on including Z and they're obviously very efficient in getting the info out there, even beating your agent in your case. I think it allows for Z to get away with a lot.

 

- I'm not entirely convinced they're competing with their customer (agent). They did however turn 180 degrees on their partnership with Opendoor. However, with the agents, I think what they are doing is helping the best agents consolidate the market by a) driving more business to the top agents at the expense of the other agents through their auction system based "Premier Agent" and b) with Z Instant Offers (flipping houses) they are tying those agents in even more. This is why I think it is happening and also ties in with your other point regarding the locals having an edge.

--Firstly, they do tie in the local agent because with Z Instant Offers (ZIO) the local agent provides the "Professional Valuation" that is part of the purchase process.

--Secondly, the local agent readies the house for sale and sells the house

--Thirdly, it has to be compelling for the local top agent who will be involved in both sides of the deal and have the infrastructure to deal with the fixing and readying the house for sale.

--Fourthly, theoretically it points to more efficiency overall, partly as a result of ZIO being another factor that drives consolidation in the agent market.

- Inventory risk; I still don't understand who has inventory risk. One would assume it is Z, but it depends how and if they will try and lay off that risk and whether it becomes a significant part of the business in the first place.

 

 

[MrB]

Thanks for this thread.  I would have never thought to look at Zillow.  I agree with all the points esp regarding house flipping.  To provide a devils advocate position (not sure what I believe) but as a data scientist, you'd be surprised at how much money good data can make you and while Zillow doesnt quite have a monopoly on data, they certain are one of the few players that have as much data on the real estate as they want.

Sometimes I think it might be helpful to think about the data in conjunction with how the stock market works and you will sometimes hear Z talk along these lines. The bid/ask spread is fairly wide in real estate because of  the inefficiency in the process, caused by complexity, time between trades (buying selling of particular house), lack or maybe perceived lack of transparency and significance of the deal for the buyer/seller. When you think about the way we used to buy and sell stocks and the way we do it today then you can see someone that sits with all of that housing data asking, why can we not make it more efficient and then come up with many ways of doing it, including ZIO (Zillow Instant Offers)? You're simply acting as both agent and principal and the risk you're taking on with the latter is that your inventory kills you in a down market. However as a "data scientist" one can see that being a logical and not totally crazy line of thinking.

[MrB]

https://www.geekwire.com/2018/zillow-group-will-start-buying-selling-homes-taking-open-door-expanding-real-estate-footprint/

Speaking about Instant Offers last year, Zillow Group CEO Spencer Rascoff said the service was a way for listing agents to get leads.

 

“There are several startups and real estate brokerage websites experimenting in this space, but Zillow is the only one that has designed a product to keep the agent involved in every part of the transaction, most notably by giving them the opportunity to secure new listing agreements,” Rascoff said. “Ultimately, Zillow Instant Offers has the potential to deliver the highest intent, highest quality listing leads at scale to our Premier Agents.”

 

Rascoff has shifted his rhetoric about Zillow over the years as the business expands. Speaking on Bloomberg TV in 2013 about competition from Redfin and others, Rascoff said “we sell ads, not houses,” and repeated that again in 2015.

[Spekulatius]

Thanks for this thread.  I would have never thought to look at Zillow.  I agree with all the points esp regarding house flipping.  To provide a devils advocate position (not sure what I believe) but as a data scientist, you'd be surprised at how much money good data can make you and while Zillow doesnt quite have a monopoly on data, they certain are one of the few players that have as much data on the real estate as they want.

 

Based on my experience and the data that Zillow provides, it’s not good enough. I think if they were to make this a business, they would then have to sent an assessor over to each property to adjust the values generated from their database, but then again, what would their advantage be over a local who as access to their public data, Redfin’s data, the MLS and local knowledge. Local knowledge is where the rubber hits the road.

[cameronfen]

Thanks for this thread.  I would have never thought to look at Zillow.  I agree with all the points esp regarding house flipping.  To provide a devils advocate position (not sure what I believe) but as a data scientist, you'd be surprised at how much money good data can make you and while Zillow doesnt quite have a monopoly on data, they certain are one of the few players that have as much data on the real estate as they want.

 

Based on my experience and the data that Zillow provides, it’s not good enough. I think if they were to make this a business, they would then have to sent an assessor over to each property to adjust the values generated from their database, but then again, what would their advantage be over a local who as access to their public data, Redfin’s data, the MLS and local knowledge. Local knowledge is where the rubber hits the road.

 

My guess is, and i dont know for sure, is that the people that have mls and redfin data dont have the captial for large scale deployment.  Most are probably agents.  All I know is just with the public data Zillow provides and not the private more granular data, and given the ability to buy houses anywhere (which i dont have but Zillow does), I'm pretty confident 50% Cagr flipping houses wouldn't be very difficult (with allropriate leverage applied as well).

Maybe big players are already doing that with MLS, but for whatever reason this return is not being competed away.  I think your point is a good one I havent considered, but just looking at Zillow's data if even I can figure out how to make decent money in real estate, it must be even easier for Zillow. 

[peridotcapital]

I'm slightly surprised that there is no thread for Zillow, unless I searched incorrectly.

 

Surely the company needs no introduction, but if you're the only person that's not heard of it then here goes.

Zillow runs the largest real estate portal business in the US. Currently valued at $9Bn, which is 8.2x revenues and the company has not turned a profit for the last five years, although it generated FCF of $180m in 2017, which values it at P/FCF of 50x. 2017 was the first year where the company generated meaningful FCF. Me thinks 2017 marked an important turn. Me thinks the company started to monetize and if the gold standard of the industry (Rightmove in the UK) is used as a proxy, which sports a 59% net margin then Zillow is selling at 15x earnings whilst growing revenues at 27%. Zillow's revenue currently makes up 1.4% of the US commision pool compared to Rightmove's 6% of the UK pool, which is one way of saying Zillow has an attractive runway. That is the basic (valuation) story.

 

The following is a good start to understand the industry.

http://www.mikedp.com/articles/2017/9/25/2017-global-real-estate-portal-report

http://www.mikedp.com/

 

FCF was $180M but stock based compensation was $113M. This is the big game in techland these days (pay a huge percentage of employee comp as stock and then tout free cash flow on earnings calls even as share count explodes. 50x FCF is therefore not the real valuation here. I like the company but the valuation looks crazy.

[MrB]

I'm slightly surprised that there is no thread for Zillow, unless I searched incorrectly.

 

Surely the company needs no introduction, but if you're the only person that's not heard of it then here goes.

Zillow runs the largest real estate portal business in the US. Currently valued at $9Bn, which is 8.2x revenues and the company has not turned a profit for the last five years, although it generated FCF of $180m in 2017, which values it at P/FCF of 50x. 2017 was the first year where the company generated meaningful FCF. Me thinks 2017 marked an important turn. Me thinks the company started to monetize and if the gold standard of the industry (Rightmove in the UK) is used as a proxy, which sports a 59% net margin then Zillow is selling at 15x earnings whilst growing revenues at 27%. Zillow's revenue currently makes up 1.4% of the US commision pool compared to Rightmove's 6% of the UK pool, which is one way of saying Zillow has an attractive runway. That is the basic (valuation) story.

 

The following is a good start to understand the industry.

http://www.mikedp.com/articles/2017/9/25/2017-global-real-estate-portal-report

http://www.mikedp.com/

 

FCF was $180M but stock based compensation was $113M. This is the big game in techland these days (pay a huge percentage of employee comp as stock and then tout free cash flow on earnings calls even as share count explodes. 50x FCF is therefore not the real valuation here. I like the company but the valuation looks crazy.

+1

[Jurgis]

Thanks for this thread.  I would have never thought to look at Zillow.  I agree with all the points esp regarding house flipping.  To provide a devils advocate position (not sure what I believe) but as a data scientist, you'd be surprised at how much money good data can make you and while Zillow doesnt quite have a monopoly on data, they certain are one of the few players that have as much data on the real estate as they want.

 

Based on my experience and the data that Zillow provides, it’s not good enough. I think if they were to make this a business, they would then have to sent an assessor over to each property to adjust the values generated from their database, but then again, what would their advantage be over a local who as access to their public data, Redfin’s data, the MLS and local knowledge. Local knowledge is where the rubber hits the road.

 

Anecdotally though, as a home owner I am concerned that Z-estimate - similarly to tax assessment value - becomes an anchor for buyers. When I was buying a house, our RE agent told us not to look at tax assessment value when considering whether the price is good. But people do and we did - at least partially unconsciously. I think the same thing is happening with Z-estimate. Which concerns me, since I see my house IMO unfairly underestimated because of variety of factors. But then maybe I won't sell for another 20 years, so maybe I should not be concerned. At least unlike stock market I won't get any activist investors buying parts of my house and trying to push for the value rerating or LBO.  ;D  8)

[DooDiligence]

Thanks for this thread.  I would have never thought to look at Zillow.  I agree with all the points esp regarding house flipping.  To provide a devils advocate position (not sure what I believe) but as a data scientist, you'd be surprised at how much money good data can make you and while Zillow doesnt quite have a monopoly on data, they certain are one of the few players that have as much data on the real estate as they want.

 

Based on my experience and the data that Zillow provides, it’s not good enough. I think if they were to make this a business, they would then have to sent an assessor over to each property to adjust the values generated from their database, but then again, what would their advantage be over a local who as access to their public data, Redfin’s data, the MLS and local knowledge. Local knowledge is where the rubber hits the road.

 

Anecdotally though, as a home owner I am concerned that Z-estimate - similarly to tax assessment value - becomes an anchor for buyers. When I was buying a house, our RE agent told us not to look at tax assessment value when considering whether the price is good. But people do and we did - at least partially unconsciously. I think the same thing is happening with Z-estimate. Which concerns me, since I see my house IMO unfairly underestimated because of variety of factors. But then maybe I won't sell for another 20 years, so maybe I should not be concerned. At least unlike stock market I won't get any activist investors buying parts of my house and trying to push for the value rerating or LBO.  ;D  8)

 

I agree, lots of volatility in Zestimates.

Might this NOT seem overvalued if it became the GEICO of RE (IOW is BRK owned it?)

BRK is my hammer and everything else is a 10 penny.

[chrispy]

My friends and myself found RedFin to be a much better platform. Zillow has many homes still listed for sale that had long been sold

[rogermunibond]

Ben Thompson had a good post on Zillow moving from a small slice of the RE pie to a disruptive model - possibly much bigger slice.

 

https://stratechery.com/2018/zillow-aggregation-and-integration/

[watsa_is_a_randian_hero]

My friends and myself found RedFin to be a much better platform. Zillow has many homes still listed for sale that had long been sold

 

redfin is better in chicago

[MrB]

Zillow Q1

http://investors.zillowgroup.com/financials.cfm

Premier Agent business flying and good evidence that driving business to the top 20%.

-Premier Agent Revenue increased 22% yoy to $213.7M.

-Premier Agent accounts, spending over $5k per month grew by 58% year-over-year in both total number and on a total dollar basis.

-Total sales to Premier Agents, including brokerages and other teams, who have been customers for more than one year increased 38% yoy.

-New sales to existing Premier Agents, including brokerages and other teams, or those that were paying advertisers at the beginning of the quarter, accounted for 70% of total bookings.

 

Zillow CFO Kathleen Philips to retire; stays on as chief legal officer until 2020.

 

[KJP]

My friends and myself found RedFin to be a much better platform. Zillow has many homes still listed for sale that had long been sold

 

redfin is better in chicago

 

I've been looking to move for awhile, and I also have found Redfin's website to be much better and easier to use than Zillow's. 

[MrB]

My friends and myself found RedFin to be a much better platform. Zillow has many homes still listed for sale that had long been sold

 

redfin is better in chicago

 

I've been looking to move for awhile, and I also have found Redfin's website to be much better and easier to use than Zillow's.

 

Zillow recently (6 months) grew visits at almost double the 10% rate than Redfin without the advantage of a much lower base. https://www.similarweb.com/website/redfin.com?competitors=zillow.com

 

Having said that Zillow is spending a truck load on advertising to drive that traffic.

[MrB]

Zillow Canada presentation

[gfp]

Anecdotally, it seems to me they have a huge runway in front of them for landlords/rentals. Listings, credit checks, and especially payments. Basically what I use cozy.co for presently (plus listings, marketing)

 

It is much faster and easier to reactivate a Zillow apartment listing than it is to recreate a Craigslist ad from years ago.

[DooDiligence]

Very long but informative video, thanks.

 

I've read through the following and still I don't understand the multi-class share structure or its implications:

 

http://investors.zillowgroup.com/stockquote.cfm#class-c-shares

 

and

 

http://files.shareholder.com/downloads/ABEA-6AA1JU/452195097x0x852324/A054054B-01E7-4459-816F-66ECCCA18C3D/01_-_Form_8937_-_Zillow_-_FINAL.pdf

 

---

 

I'm almost fully invested and Zillow, Louis Vuitton and oilfield services (Core Labs in particular) are interesting to me ATM.

I gotta pick one and it won't necessarily be ANY of the 3.