To all the agents in the house,
One month after announcing its iBuying wind down, Zillow is entering a new phase. Here are three key developments.
* Zillow is moving existing inventory fast.
When CEO Rich Barton announced the company was departing iBuying last November – citing volatility of the company's price forecasting model – it was unclear how soon Zillow could depart iBuying. The company had about 18,000 homes in its inventory, either purchased or in contract to be purchased, and many were reportedly purchased above market value.
Well, Zillow put out a press release yesterday saying that more than half these homes sold or are in contract, or some other type of agreement to resell.
Who's buying them? Zillow won't say. The Wall Street Journal reports that large institutional investors, meaning landlords of thousands of single-family rentals, are being courted by the Seattle-based company. The one specific on this is that New York-based investment firm Pretium Partners agreed to purchase 2,000 homes.
How much money is Zillow losing? The company says an average of 5-7% per deal. Meaning, a home bought for, say, $400,000 is on average being resold for $372,000-$380,000.
This makes it roughly break even when the convenience fee Zillow charged the seller is included….until you add operating expenses.
Like a person selling furniture after a fire burned down their house, Zillow seems less concerned about minimizing losses, and more focused on moving on.
* Zillow faces shareholder lawsuits.
Two are filed, while at least one law firm is hungrily on the hunt for a Zillow stock holder, so they can join the lawsuit party.
The arguments behind these lawsuits interest me, as someone who listened to Zillow pre-quarter three earnings calls, because neither Barton nor Chief Financial Officer Allen Parker really wavered in their confidence about Zillow Offers.
I am used to CEOs putting a positive spin on their company's performance. Compass CEO Robert Reffkin declared Compass did a "fantastic" job after it lost $100 million in the third quarter amid historic real estate demand. Opendoor CEO Eric Wu said in August that "all the homeowners crave" what his company is offering, when about 1.6% of all U.S. home transactions involve iBuying, according to Mike DelPrete, a real estate strategist.
And, so, I'm curious if, in the case of Zillow, such assertions are mere spin, or an outright deception to shareholders who take such words to heart.
* Zillow is increasingly worth less on Wall Street.
Share price and market cap are perhaps overrated ways to measure a company's success, but the degree to which ZIllow has lost market value seems newsworthy. The company had a market cap of $48 billion after its annual earnings call, and $14.7 billion as of Friday afternoon.
That figure actually incrementally jumped after the company announced Thursday an up to $750 million stock buyback program.
Agents, what do you think of these developments? Do you see Zillow re-emerging as a powerful – if radically different – company in 2022? Or will they be mired in litigation and losses for quite some time?
Please email me anonymously at mblake@housingwire.com.
Sincerely,
Matthew Blake
Senior Real Estate Reporter
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