Real Estate

Riding Hot Market, Zillow Posts First Profitable Quarter In 3 Years

Zillow handily beat revenue expectations in the third quarter of 2020, as both a demographic and COVID-19 pandemic shift fueled a booming housing demand, which Zillow CEO Rich Barton believes will persist even after the pandemic ends.

Rich Barton | Photo credit: Zillow

Nonetheless, despite the heavy demand for housing, the report also showed just how badly the early days of COVID-19 impacted the rapid scaling of the company’s Zillow Offers homebuying and selling platform.

The Seattle-based company announced Thursday it posted $657 million in consolidated revenue across all business segments, below the $745.2 million the company posted in the third quarter of 2019.

The slowing down of the company’s iBuyer business resulted in the most profitable quarter in company history for Zillow, which posted a consolidated net income of $40 million. It’s only the third profitable quarter Zillow has posted since 2014 and the first the company posted since the third quarter of 2017. 

Zillow beat the Zacks Consensus Estimate of $571.3 million in revenue. It also posted earnings per share of $0.17, which beat the Zacks estimate of $0.15.

“Many of us are re-evaluating where we live and how we live, which has kicked off a Great Reshuffling, and we need safe, digital ways to get to a better place,” Zillow CEO Rich Barton said in a statement. “Given the duration of this pandemic, the concrete is setting on new digital solutions for life and work.”

“This is driving record demand for housing and record engagement with Zillow’s leading digital real estate brands,” Barton added. “When combined with level-headed cost decisions, the result has been profitable growth.”

That booming demand led to a significant increase in revenue for Zillow’s Internet Media and Technology (IMT) business segment, the segment under which it’s Premier Agent advertising program exists. IMT was the company’s top revenue generator for the company, posting revenue of $415 million, a year-over-year increase of 24 percent.

Premier Agent alone generated $299 million in revenue, a 24 percent increase, year over year. The revenue boom was a result of strong customer interest in moving, which drove 236 million unique visitors to the Zillow platform, a quarterly record.

From those visitors, Zillow was able to glean that this current housing boom will continue past COVID-19, which is good news for the real estate industry.

“We believe these tailwinds are durable, supported by low-interest rates and demographic shifts, as Millennials age into their prime homebuying years with Gen Zs lining up behind them,” Barton and Zillow Chief Financial Officer Allen Parker, said in a letter to shareholders.

Going into 2020, there were approximately 5 million more Americans aged 26-35 than there were in 2010, according to the letter. As those millennials move up, Gen Z will take the baton and begin buying homes, which is an even bigger generation in size.

Continued investment in technology is also enabling more people to do their shopping and transacting online, the letter continues, which is where Zillow Offers comes in.

“All of this is happening as people are increasingly turning to new technology to safely navigate many aspects of their lives, including shopping for and buying their next home,” the shareholder letter reads.

The company’s overall revenue decrease was driven by a 51 percent decline in revenue generated by Zillow Offers, due to dwindling inventory as a result of a COVID-19 pause in March, which the company eventually lifted in May.

The company’s Zillow Homes segment — the business segment under which Zillow Offers operates — generated $187 million in revenue, the lowest since the first quarter of 2019.

“We restarted Zillow Offers home purchase activity during Q2 and early Q3, initially focusing on safety,” the shareholder letter reads.

“As we became more comfortable with our data inputs and our ability to operate safely, we turned our attention to increasing our rate of home purchases, beginning to build back purchase activity towards pre-pandemic levels.”

Zillow purchased 808 homes in the third quarter of 2020 and sold 583 homes. It ended the quarter with 665 homes in inventory, up from the 440 homes the company owned at the end of the second quarter.

Zillow lost, on average, $7,506 per home it sold in the third quarter. The segment overall posted a net loss of $76 million before income tax.

Perhaps the biggest news of the quarter — and one that will likely have a material impact on future numbers for Zillow Offers — was the company’s announcement that it planned to bring the management of Zillow Offers transactions in-house.

The change won’t begin to be implemented until January 2021, however, so the move’s impact won’t be clear in the company’s next earnings.

In the fourth quarter, the company expects its Home segment revenue to continue to rebound and generate between $260 million and $280 million in revenue.

Zillow’s mortgage business continued to scale, with a revenue of $54 million, an increase of 114 percent year over year. Originations grew more than 300 percent year over year, due in part to high refinance activity driven by low mortgage rates.

The company’s stock price surged in after-hours trading, jumping $10 to $115 per share by 5 p.m.

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