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Home / Business / Zillow is big at flipping houses, and investors seem to like it

Zillow is big at flipping houses, and investors seem to like it

Zillow Group Inc. believes that "unprocessed" consumers want to buy and sell homes on their phones, so making an even greater effort on real estate purchases despite high-risk projections.

Thursday, Zillow

ZG, + 0.46%

said, as part of the quarterly result, that it would make more investments in its Zillow Offers service, allowing consumers to easily sell their homes to the Seattle-based company . Zillow, who has seen his share, gradually loses nearly half its value since launching the service in the second quarter of 201

8, and also announced a shuffling of jobs among its three co-founders, while CEO Spencer Rascoff went down and stepped into the board, replacing by co-founder Rich Barton.

Shares in Zillow retrospectively trade the news, but after company leaders had predicted that Zillow Offers could add "$ 20 billion in annual sales over the next three to five years" on a conference call with investors, the shares drew back and jumped about 6%. On Thursday, its shares closed at $ 35.04, down 46% from 2018 high at $ 65.57 in July 2018.

Zillow resembled its major shift in strategy for Netflix's embrace of streaming video, as it provided streaming for many years The site would exceed DVD rental business in revenue. Another comparison that can be made is that real estate, as content, can be very expensive in some markets.

"I see many parallels here when we take the Zillow Group in the next phase with what we saw on Netflix, as we moved from DVDs via email to streaming and then to originals," Barton told analysts at the conference call. "It's that kind of change." Barton has been to Netflix Inc.s

NFLX, -0.82%

board since 2002. At the end of the conversation, he made another Netflix analogy. "Can you imagine if Netflix just ignored streaming? You can probably tell I'm excited. I hope you are too."

Zillow Offers, officially launched in April 2018, allows homeowners who want to sell the property receive a offers from Zillow with an analysis of their home value. Zillow seeks to buy, renovate and then resell the properties for 90 days or less. Zillow said as part of his long-term goals, he believes it can buy 5000 homes a month, derives more than 3,000 loans a month, and achieve annual segment sales of $ 2 billion, more than doubling its size.

But so far, it does not achieve its 90-day sales target. Zillow said it has bought a total of 686 homes since Zillow Offers launched, but sold only 177, with 141 sales coming in the fourth quarter. Zillow Offers are available in seven markets nationwide, with plans to be in 14 at the turn of the year.

These projections are not risk-free, and the US real estate market, while strong in recent years, is incredibly weak. And its features are hardly seriously profitable, so far the least. Forbes made a quick analysis and concluded that out of the 141 homes Zillow sold in the fourth quarter, it made only an average profit of $ 1,723 per home, after factoring in sales, sales and renovation costs. It also has other competitors, especially rival Redfin Corp.

RDFN, + 2.20%

RDFN, + 2.20%

RDFN, + 2.20%

with Redfin now.

Zillow's move to buy and sell real estate basically caused concern among its core revenue base – real estate agents, which is where it gets about 70% of revenue. Zillow said that now is making real estate agents the core partners of the process.

Ygal Arounian, a Wedbush Securities analyst, said in a earnings preview that while he "likes [the[s] story that Zillow puts together as his next leg of a property disturbance," he noted, "Zillow is still in the early stages of this the process, and the risk / reward that is led in 2019 is currently balanced. "

Another risk is the amount of debt that Zillow may have to wear to complete its ambitions. The company said it now has $ 1 billion with maximum loan capacity to support the rapid growth of Zillow Offers in 2019 and beyond.

Investors can be excited about Zillow's great pivot at the moment, but whether it is the ability to become a real estate investor and flipper of consumerism is a question mark that is going to hang over the stock until it turns out otherwise.

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