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Zillow Group Bids Fond Farewell To iBuying

May 05, 2022

Reports solid 1Q 2022 earnings in part from selling off all but 100 homes left from Zillow Offers unit.

Zillow Group Inc. is almost completely out of the iBuying business, and the company couldn’t be happier about it. 

The Seattle-based online real estate marketplace said Thursday it had just 100 homes not currently under contract to sell remaining on its books, after selling nearly 9,000 homes in the first quarter of 2022. That rapid selloff helped the company post $4.3 billion in revenue in the quarter, up 20% from $1.29 billion a year earlier. 

Zillow reported adjusted net income for the first quarter of $141 million, or  49 cents per diluted share, up 22% from $115 million, or 44 cents per diluted share, a year earlier. The results beat the Zacks Consensus Estimate of 27 cents per diluted share.

In a letter to shareholders, Co-Founder and CEO Rich Barton said the inventory of more than 20,000 homes the company owned when it decided to shutter its Zillow Offers unit in the third quarter of last year had been reduced much more rapidly than expected.

Zillow sold 8,981 homes in the quarter, helping its Homes segment produce revenue of $3.7 billion.

“As of Jan. 31, 2022, we are no longer acquiring homes. We ended the quarter with approximately 1,300 homes in inventory and have now sold or have entered into agreements to sell or dispose of most of these homes …,” Barton said. “We expect the sale of our remaining inventory to be substantially complete in Q2, with operations and a small amount of inventory extending into early Q3.”

He added that rising prices in the housing market helped the company receive better value for the homes it sold. Zillow now estimates losses on inventory during the wind-down process for homes at approximately $300 million at the end of the first quarter. 

“We felt confident in November, and we feel more confident today, that no longer being a principal in the iBuying business was the right decision for Zillow….,” Barton said during a conference call with analysts.

Still, he acknowledged that the low inventory of homes for sale, combined with rising prices and rising interest rates, has created difficulties for the industry. The company’s Mortgage segment, for example, saw its revenue fall 32% to $46 million in the quarter from a year earlier.    

“While the housing market outlook may be choppy in the near term, today’s first-quarter results, together with our strong brand, audience, and balance sheet, demonstrate how well-positioned and prepared Zillow is to forge ahead,” Barton said.

He added that while the company is “mindful of macro challenges, our eyes are focused on the future as we develop new products and services that bring us closer to realizing the ‘housing super app’ vision of delivering an integrated end-to-end experience for our customers and partners.”

In fact, Zillow’s internet, media & technology (IMT) segment revenue grew 10% year over year to $490 million, above the $487 million midpoint of the company’s outlook range. 

Barton said now that the iBuying segment is close to being wound down, Zillow will focus on what he called its “five key growth pillars” — touring (as in touring homes for sale), financing, expanding seller services, enhancing its partner network, and integrating services.

Touring, he said, is the “key point-of-sale moment in real estate, and an action that converts at three times the level of any other action buyers take on Zillow.” 

Zillow has developed 3D home tour floor-plan technology that allows users to virtually tour a home for sale, Barton said. He noted that listings on Zillow that featured the 3D home tour received an average of 81% more views and were saved by buyers 53% more frequently than listings without the feature.

He also discussed efforts to improve “real life” tours, for which Zillow acquired ShowingTime, an online scheduling platform for home showings. And he noted that Zillow is upgrading StreetEasy, its real estate shopping and rental app for New York City. 

“Using the StreetEasy app, New Yorkers will be able to use the camera on their phone to scan a street to reveal floating icons in front of residential buildings, then click on the icons to quickly learn more about the building and amenities, discover available units, view photos, floor plans, and take virtual tours of the buildings units,” Barton said. “It's sort of like a QR code for a building.”

He said 6.1 million U.S. homes exchanged hands in 2021, and Zillow estimates that “4.1 million of those actual buyers were on our sites and apps, which accounts for two-thirds of all buyers in the U.S.” In addition, Zillow estimates that 1.4 million home buyers asked to connect with the Zillow Premier Agent last year.

“That means that about one-quarter of all buyers in the U.S. last year liked a button to connect with us,” Barton said. “Of those 1.4 million high-intent movers, we estimate that about 360,000 customers ended up transacting with Zillow partners.” 

Given that, Zillow estimates that its “buy-side 2021 market share” was roughly 5%, while its overall customer transaction share was 3%, he said.

“As part of our targets laid out last year, we have set our sights on increasing our share of customer transactions from 3% to 6% by 2025, with lots of runway beyond that,” he said.

About the author
David Krechevsky was an editor at NMP.
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