Hot & Sexy Zillow Stock Soars – at what cost?

When Saturday Night Live parodies your company, things are going terribly wrong or significantly well for Zillow CEO Rich Barton. Perhaps it was fitting that this dropped right before their 2020 earnings call on Feb 10th.

Schitt’s Creek actor Dan Levy, hosted SNL and performed in the sketch that was well received in the industry and the general public.

Barton responded by joking on twitter, tweeting “Perhaps we’ve been marketing Zillow wrong all these years”

But Zillow’s marketing has worked… really well.  According to Inman, they currently have around ⅔ of all the home search traffic in the US. 

Money Talks

This morning Zillow class A stock is sitting at an all time high of $172 per share and a market cap of $39B (NASDAQ: ZG). To compare, the number two portal for real estate leads, is Realtor.com.  Their parent company, NewsCorp (NASDAQ: NWSA) is also at it’s all time high: $21.70/share with a market cap of $12.7B.

While the stock has had an incredible rise so far in 2020 and 21, Deutsche Bank and Goldman Sachs have also both released glowing notes on the company last week – signaling a positive future for the company.

Despite the sexy SNL bit and record breaking stock price, all is not well in Seattle.  Costar ($900/share and $35B market cap NASDAQ: CSGP) has launched a public attack on Zillow.  Top Teams, Brokers and Agents are fleeing the company and searching for other solutions and the site lacks supply  – listing Inventory is at an all time low.  With out listings, it’s very hard to sell leads.

Or perhaps the truth is, they no longer care about selling leads. 

The Pivot

They changed business models a few years ago, buying a mortgage company, raising capital and opting to buy homes directly from consumers, and consumers loved it.  Consumers appreciated the ease of asking for a quote on their home – an offer to buy.  Consumers can now skip realtors, showings and open houses.

It was so popular, Z had to deal with the influx of leads – and build an automated system to manage them.  However soon it was apparent that they would need to hire real estate agents in order to increase their profit margins.

This was a clear violation of the “trust” between them and the agents they served.  Z was in fact a direct competitor.   

*It should be noted that this imbalance is at the crux of the CoStar plan of attack. 

Rent Vs Buy
Top real estate experts such as Scott Pridemore, a Charlotte NC Broker in charge with a team and two offices quit buying portal leads.  Scott sought a new process to remove Zillow  & RDC from his lead flow.  In short, he had a change of view.  Many like Scott have realized that they’d been paying for leads each month, renting leads – and he wanted to own his database vs rent from Z.

Pridemore values the automation of systems like how he implemented Revaluate integrated inside FollowUpBoss to help him find inventory. In his mind, the listing is a “guaranteed” transaction.  

“Revaluate and its integrated partners allow us to take matters into our own hands and be creative in the procurement of the listing – to find more opportunities for working with sellers.” Said Scott.
“It starts with information….Revaluate allows us to get some level of intelligence … allowing us to reach out to those people who are most likely to move.”

While loads of people like Scott are defecting from Zillow, in favor of other systems, it may not matter to the health of Z. It may be that Zillow business model has pivoted so much that the old model is being sunsetted in favor of the new model.

So while they seem to have a problem on the surface, Zillow is crushing it in branding, search and stock. 

Well done Rich Barton – I’m eager to see how this next chapter unfolds.