Zillow

How Zillow's big gamble changed the game: From listings to buying homes

In the ever-changing world of real estate, Zillow has always been a go-to name for home listings and market insights. But a few years back, Zillow faced a big challenge: competition was heating up, and simply being the best listing site wasn't enough anymore. The company needed to evolve or risk falling behind.

A crowded space with limited growth

By the mid-2010s, Zillow found itself in a tough spot. The online real estate market was getting crowded, and many other platforms were trying to grab users' attention. Zillow was doing well with its advertising model, but it was relying heavily on real estate agents and brokers for revenue—a risky move as competition started offering more integrated services. Zillow needed a new direction, something bold that would help it stand out from the crowd and secure future growth.

Jumping into the buying game

In 2018, Zillow made a daring move: they launched "Zillow Offers," a service that let them buy homes directly from sellers, fix them up, and then put them back on the market. It was called iBuying, and it aimed to make selling a home as easy as possible—no endless showings, no waiting, no hassle. By getting into the buying and selling game, Zillow was no longer just helping people find homes; it was now directly involved in the process, creating a new way to generate revenue and depend less on advertising.

The plan

Zillow didn't jump in blindly. They started Zillow Offers in a few select markets, using their deep knowledge of property values and market trends to make smart buying decisions. By 2019, they expanded into more cities, buying thousands of homes. This growth was powered by investments in tech and logistics to make the entire buying and selling process as smooth as possible.

Numbers that tell the s,tory

So, did it work? Well, let’s take a look at how it affected their bottom line:

• Revenue Growth: After launching Zillow Offers, the company's revenue skyrocketed, climbing from $1.3 billion in 2018 to $2.7 billion in 2019. A big part of this surge was thanks to the new home-buying business.

Source: Netcials

• Margins: Buying and selling homes isn't cheap. The Homes segment had thinner margins because of the costs tied to purchasing and renovating properties. But the core advertising business stayed strong, keeping overall gross profit solid.

Source: Finbox

Source: Netcials

Return on Invested Capital (ROIC): With all the money going into buying homes, Zillow's ROIC took a hit in the short term. But the idea was that as they got better at the process and scaled up, those returns would start looking a lot healthier.

Source: Alphaspread

• Economic Profit: Initially, the profits from Zillow Offers were modest—starting something new always has its costs. But the real goal was to get a piece of the action in the actual home transactions, betting on long-term gains rather than just quick wins.

Stock performance against rivals and SP500 Index

Source: Tradingview

Betting big and breaking new ground

Zillow's leap into iBuying was a gutsy move to redefine its role in real estate. Instead of just sticking with advertising, Zillow started getting its hands dirty by buying and selling homes, offering a new, easier way for homeowners to move on. The journey wasn't without its bumps, but this shift in focus laid the foundation for future growth, showing that sometimes, taking a risk is the best way forward. The company’s willingness to innovate and adapt gave it a new edge, turning what could have been a risky bet into a promising step toward staying ahead in the game.

References

1. Zillow Group Annual Reports. Available at: https://investors.zillowgroup.com/

2. Market Data and Financials from Yahoo Finance. Available at: https://finance.yahoo.com/

3. Analysis on Zillow's Business Model from Investopedia. Available at: https://www.investopedia.com/