Zillow experiences growing pains as it moves from listing houses to buying them

Technology

In the last few years, Zillow has reshaped its entire business, moving from a real estate listings website to a company that supports the entire homebuying and selling experience.

And while the company is seeing positive results in terms of growth and revenue generation, Zillow is also experiencing some serious financial growing pains as it expands.

According to the company’s third quarter results, Zillow’s consolidated quarterly revenue more than doubled year over year, driven by expansion in Zillow Group’s Homes segment (which includes the company’s iBuying business, Zillow Offers) and solid performance in the Premier Agent business.

Zillow Group‘s Q3 consolidated revenue grew 117% year over year, up to $745.2 million, mostly driven from growth in the Homes segment.

“Our third quarter results were strong, demonstrating that Zillow Group’s business model expansion to mechanize real estate transactions is gaining traction as consumer demand reveals people want a better, simpler way to buy, sell, rent and finance homes,” said Zillow co-founder and CEO Rich Barton.

But, while things may be looking up for Zillow Offers, the program’s costs are exceeding the money coming in, leaving the company operating at a big loss.

In the third quarter, Zillow posted a net loss of $64.6 million, an increase of more than 13,000% from the same time period last year, when the company lost only $492,000.

For the year, Zillow has now lost more than $204 million, compared to a loss of just over $22 million in the first three months of 2018.

And basically all of that loss is coming from the company’s homebuying expansion.

According to Zillow, its Homes segment has lost approximately $204.2 million, slightly more than the company’s overall loss of $204.15 million.

As Zillow is finding so far, buying, refurbishing and selling houses is a sometimes expensive proposition. In fact, according to Zillow, the company is losing money every time it buys and sells a house.

According to a letter to shareholders, Zillow’s average cost per house in the third quarter was $317,723. Its average sales price was $113 less, $317,610.

Put simply, Zillow is losing $113 every time it buys and sells a house.

In Q3, Zillow purchased 2,291 homes and sold 1,211 of them.

The company ended the quarter owning 2,822 houses.

Zillow says the rise in awareness and demand for Zillow Offers is growing rapidly, with over 80,000 homeowners requesting offers from Zillow in Q3 alone.

In Q3, Zillow Offers launched in eight new markets, including Portland; Nashville; Miami; San Diego; San Antonio, Texas; Austin, Texas and Fort Collins and Colorado Springs, Colorado.

By mid-2020, Zillow says it plans to be in 26 markets. By the end of 2019, the iBuyer says it will launch in Los Angeles.

Meanwhile, the company’s Premier Agent business, where the company sells ads and other features to real estate agents is helping to blunt some of the financial damage from the company’s expansion.

“Our core Premier Agent business is strong, with record revenue that exceeded our outlook,” Barton said. “The profitability of our Premier Agent business is foundational to Zillow’s success and is the reason we are able to expand Zillow Offers with such confidence and speed. This quarter’s results illuminate how Zillow Group is in the most favorable position to lead Real Estate 2.0.”

Traffic to Zillow Group-related mobile apps and websites reached an all-time high in Q3, with an average monthly unique users up 5% year over year to 195.6 million. Zillow says that visits exceeded 2.1 billion, up 11% year over year.
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