Zillow Group nearly doubled its revenue in the third quarter as it invests heavily in the company’s home sales business.
The Seattle company reported revenue of $745 million for its third quarter, up 117 percent year-over-year, with net GAAP loss of $64.6 million, or $0.31 per share. Wall Street expected revenue of $718 million and EPS of -$0.43.
Shares were up as much as 12 percent in after-hours trading.
Zillow is betting its future on directly buying and selling homes, and it is rapidly expanding the service across the U.S. Zillow Offers, the service that lets customers go online to request cash offers directly from Zillow, 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’s “Homes” segment brought in $384.6 million in revenue, up 55 percent from the second quarter, and took a net loss of $87.9 million. The company sold 1,211 homes and purchased 2,291 homes, ending the quarter with 2,822 homes on its balance sheet. More than 80,000 homeowners requested an offer from Zillow in Q3.
“While still very early, we are encouraged by the positive feedback from our Zillow Offers customers and the demand we’re seeing for a more efficient, integrated transaction experience,” Zillow wrote in its shareholders letter.
Under the program, some homeowners in Zillow Offers markets see a button on the Zillow site that says “get an offer.” The seller fills out a short questionnaire and sends in a couple photos. About 48 hours later, Zillow comes back with an offer and an agent to work with. The seller and Zillow set up a call to walk through the offer and schedule an inspection. Then Zillow sends a revised offer after seeing the house. If both sides are happy with the situation, the seller signs forms digitally and picks a closing date. Zillow takes care of the rest.
Contractors working for Zillow undertake small renovations to prepare the home for sale. Zillow works with local agents to list and sell the homes and pays commissions to agents on each transaction. Zillow attaches a service fee for the seller in exchange for avoiding the hassle, time commitment and uncertainty of a traditional home sale.
Here’s a look at the unit economics for the “Homes” segment:
Zillow’s surprising pivot in February, a move that also included the return of co-founder Rich Barton to the CEO chair, came as a growing cadre of real estate companies seek to re-imagine how homes are bought and sold. Zillow’s cross-town rival Redfin beat analyst expectations last quarter powered by its own home-buying business, Redfin Now.
Zillow Offers has high expectations. The company projected earlier this year the business could bring $20 billion in annual revenue on its own in three to five years while buying up 5,000 homes per month.
Zillow’s Premier Agent business saw revenue rise 7 percent to $335.3 million with net income of $91.1 million in the third quarter, helping fuel the company’s Homes push.
“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,” Zillow co-founder and CEO Rich Barton said in a statement. “Our core Premier Agent business is strong, with record revenue that exceeded our outlook. 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.”
Zillow expects total revenue of $790 to $825 million in the fourth quarter, with $465 to $490 million coming from the Homes segment. It expects a loss between $25 and $43 million.
The company’s stock has fluctuated this year, rising steadily until the company’s second quarter earnings report came out in early August. Shares have fallen about 33 percent since then, trading at $34/share before the market closed Thursday.
Here’s more from the shareholders letter:
“Consumer demand for a seamless, tech-enabled real estate transaction is growing steadily, and we believe Zillow Group has many competitive advantages to lead the market to Real Estate 2.0. This starts with our large and stable Premier Agent business that is the foundation of our emerging businesses fueled by a large audience, high brand awareness and trust, best-in-class data intelligence and technology systems, strong industry partnerships and critical operational expertise.
By moving further down funnel, our total addressable market has expanded from $18 billion in real estate advertising to $1.8 trillion in real estate transactions – and this excludes the numerous adjacent market opportunities that surround every home transaction.
We remain energized by the opportunity in front of us to transform not only our company, but our industry as well. This expedition will take years, not months, to realize our full potential. With every quarter, we gain valuable experience that enables us to refine our model, which we believe will drive improved margins and returns over time and ultimately deliver long-term value for our customers, partners, employees and shareholders.
We remain committed to providing you with clarity and insights as we progress along this journey. As always, we appreciate you joining us. We have every confidence it will be worth it.”