Zillow 2.0 is here: Home sales outpace real estate giant’s traditional businesses for first time

Zillow CEO Rich Barton. (Geekwire Photo / Kevin Lisota)

Well, that didn’t take long.

Zillow Group’s home sales division now makes up the majority of the company’s business, just 19 months after it started and nine months after the real estate giant went all-in on buying and selling houses directly. For the first time, quarterly revenue from home sales outpaced the traditional businesses Zillow has spent the last 13 years building.

In the third quarter, Zillow’s “Homes” segment brought in $384.6 million in revenue, up 55 percent from the second quarter. That represents 51.6 percent of Zillow’s company-wide revenue of $745 million for the quarter.

Zillow CEO Rich Barton acknowledged the milestone on a call with analysts Thursday. He said the company has been able to make this major shift within its “profit rails” — the company posted narrower losses than Wall Street expected. That wouldn’t be possible without the strength of Zillow’s traditional businesses of real estate agent advertising and media, which continue to grow at a slow but stable clip while turning a profit.

The fundamental shift to focus on home sales — dubbed Zillow 2.0 — opens up a much larger market opportunity, and Barton said the company is off to a good start.

“This kind of growth from a standing start may not be unique, but it is certainly rare, and it was our hope to not just get on the field in this big exciting consumer category, but to become the team to beat,” Barton said.

Zillow stock is up 12 percent in early trading Friday morning, following an after-hours surge when the company reported its third-quarter financial results. Here are a few stats that capture the growth of the Homes segment in the quarter:

  • The company sold 1,211 homes and purchased 2,291 homes in the quarter, ending the period with 2,822 homes on its balance sheet.
  • More than 80,000 homeowners requested an offer from Zillow in Q3.
  • Zillow Offers expanded from 13 to 21 markets this quarter and the company expects to be in 26 by mid-2020, including Los Angeles by the end of this year.
(Zillow Image)

For the year, Zillow expects the Homes segment to bring in $1.23 billion to $1.25 billion out of the company’s projected $2.6 billion total revenue. That’s a huge number for the Homes segment, but looking back at Zillow’s original projections for the business shows the company has a long way to go to reach its lofty goal.

In February, when the company embarked on this new era, which also featured the return of Barton to the CEO role, it projected $20 billion in revenue from the Homes segment alone within three to five years.

That’s a tall order, and there are bound to be some bumps along the way, Barton said. But the end goal of transforming how people buy and sell houses keeps the company pushing forward.

“We have a long way to go to fully realize our vision, but the possibility of a bundled real estate transaction experience, a one-stop Zillow platform that helps people save time, money and hassle is clear,” Barton said. “Real estate broadly defined is a huge industry that has been impressively resistant to technological advance.”

He continued: “Modernizing and re-platforming this massive industry will take time and investment, but it is inevitable. And we have the brand, traffic, skills and the capital to lead this pace shift.”

Redfin CEO Glenn Kelman at the company’s Seattle headquarters. (GeekWire Photo / Nat Levy)

Zillow’s all-in approach makes for an interesting comparison with crosstown rival Redfin. The tech-powered real estate brokerage reported explosive revenue growth this week. Its home sales business, RedfinNow, played a big role. But Redfin hasn’t made it the focal point of the business the way Zillow has.

RedfinNow accounted for just over a third of the company’s overall revenue of $238.6 million in the quarter. The company projects that ratio to move closer to 40 percent in the next quarter.

On a call with investors, Redfin CEO Glenn Kelman noted that the so-called “iBuyers” haven’t figured out how to turn a profit on mass home sales. While RedfinNow is growing quickly — it has expanded to four new markets since July 1 — the company is being more selective about the homes it buys and focusing on figuring out profitability.

“We still see profit, not growth, as the fundamental challenge with institutional buying,” Kelman said. “We’re investing more in our capabilities as an institutional buyer to improve RedfinNow’s profitability, even as we narrow the range of homes in each market that we buy.”