Real Estate

Zillow Posts Its Most Profitable Quarter In Company History

As Zillow’s iBuyer profits clocked in at $27 million in the fourth quarter, it’s the Premier Agent business that sent Zillow to record-setting highs

Zillow posted its most profitable quarter in company history in the fourth quarter of 2020, reporting a net income of $46 million. It’s the first time since the company began trading publicly that its posted consecutive profitable quarters.

While the profit itself was not massive, the company’s ambitions remain so. To that end, Zillow also announced Wednesday it has agreed to acquire real estate showing management and market analytics company ShowingTime for $500 million. The company said it will continue to operate ShowingTime as an open platform for the entire real estate industry.

And, most intriguingly for close watchers of Zillow’s iBuyer program, Zillow actually posted an average profit on the homes it sold in the fourth quarter of 2020 — its first such profit. Zillow Offers gross profit in the fourth quarter was $27 million and the company’s gross profit on homes sold was, on average, $19,206, after interest expenses.

Rich Barton | Photo credit: Zillow Group

The company, which reported its fourth-quarter and full-year 2020 earnings Wednesday, breezed past the consensus estimate of $741.2 million in revenue in the fourth quarter, posting quarterly revenue of $789 million.

“Zillow’s strong results reflect exemplary execution and continued growth during the scary roller-coaster ride that was 2020,” Zillow Group co-founder and CEO Rich Barton said in a statement. “Many Americans who had previously dreamed of moving now have the flexibility to do so, and they flocked to Zillow in record numbers.”

The full-year also revealed the overall impact of COVID-19 on Zillow’s business: it’s been a boon to the Internet, Media and Technology (IMT) segment of the business under which Premier Agent falls and a brief stumble block to Zillow Offers.

Zillow’s IMT business saw revenue jump 33 percent year over year in the fourth quarter to $424 million. For the full year, the segment of the business posted revenue of $1.5 billion, an increase of 14 percent, year over year.

According to a letter to shareholders, revenue growth was driven by record traffic — the company had 201 million unique users in the fourth quarter — as well as Premier Agent connections that grew faster than traffic and improved demand for the company’s other services. Premier Agent specifically generated $314 million in revenue, a year-over-year increase of 35 percent in the fourth quarter.

“While we benefited from favorable housing industry tailwinds, we continue to focus on providing outstanding service and optimizing to connect more high-intent customers with more high-performing partner agents,” Barton wrote in the letter to shareholders.

The ShowingTime acquisition is part of Zillow’s effort to “invest aggressively in technologies and services that make it easier for our customers to transition from today’s dreamers and shopper into tomorrow’s buyers, sellers and renters,” Barton said in the shareholder letter.

Zillow Homes — the segment of the business under which Zillow Offers falls — continues its ascent back to a becoming significant part of the company’s business. In the fourth quarter, Zillow Homes generated $304 million in revenue, which was down 50 percent year over year but up significantly from the $187 million it generated in the third quarter. For the full year, the segment posted $1.7 billion in revenue.

The Home segment overall posted an adjusted loss of $47 million, which was better than the high end of the company’s outlook.

The outperformance was primarily due to stronger-than-expected home price appreciation in Zillow Offers markets and a higher portion of homes sold in the fourth quarter.

“We continued to make progress assessing the right level of renovation and improved operational rigor across the business,” Barton added.

Customers are also increasingly using Zillow’s in-house closing services, which improve the unit economics, according to Barton.

Zillow put a pause on buying homes in the early days of the pandemic — as did many of its competitors — before returning to homebuying a month later on a rolling basis. It has continued to accelerate its buying, purchasing 1,789 homes in the quarter and selling 923. It ended the quarter with 1,531 homes in inventory, nearly two-and-a-half times more than the 665 homes it held at the end of the third quarter.

The company’s mortgage business also continues to grow. Revenue for the mortgage segment of Zillow’s business hit $61 million in the fourth quarter, up 190 percent year over year. The segment posted an adjusted net income of $14 million in the fourth quarter.

For the full year, Zillow’s mortgage segment posted revenue of $174 million, up 73 percent year over year.

“We continue to build the origination team, product, and operating platform, driving strong loan volume growth, particularly in refinance as activity benefited from our customers interest in low mortgage rates,” Barton said.

The company’s guidance for the first quarter of 2021 expects revenue back up over the $1 billion thresholds it hit before the COVID-19 pandemic hit, with the home segment leading the way and returning as the company’s top revenue driver. The high end of the company’s first-quarter outlook projects $1.12 billion in total revenue, $428 million from the IMT business, $620 million from the Zillow Homes business and $64 million for the mortgage business.

Email Patrick Kearns

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