Stock Update: Zillow
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Due to the Federal Reserve lowering interest rates and the flexibility of work-from-home penetrating white-collar sectors, many people have spent the pandemic looking for their dream house. However, the nature of lockdown has meant that much of the market has been forced to move online, highlighting the inadequacy of digital tools within the real estate sector. Presently, the industry is dominated by individual, localized brokerages that can make the process of buying and selling cumbersome and time-consuming, especially if you're moving to a whole new city or state. Consumers are accustomed to convenience when shopping and this desire makes the real estate sector ripe for innovation.
The solution: iBuying. iBuying stands for Instant Buying and it's not a new concept but one that has significantly improved with the use of big data and artificial intelligence. iBuying companies can get you an instant offer on your house using market averages and algorithms. While sellers won't make as much doing this, it expedites the process and allows owners to quickly move on, avoiding the risk and holding costs of finding a buyer. This streamlined process is attractive to Millennials and has taken off in the generation's favorite cities, like Portland, Dallas, and Denver. In 2019, only about 1% of homes were sold through iBuyers nationwide but in Raleigh, it was nearly 7%, in Phoenix it was 5%, and in Atlanta it was 4.4%. So while this sub-sector of housing is gaining popularity, there is still plenty of room to grow and this has caught the attention of investors searching for the next great digital disruption.
Three significant players have come on the scene: Opendoor, Redfin, and Zillow. Currently, only Zillow resides on the MyWallSt shortlist, gaining entry in 2015 when the company was known as a real estate search engine. Since then, it has pivoted and introduced Zillow Offers and Zillow Mortgages, buying and selling thousands of homes throughout 2018 and 2019. Significantly, this risky venture would appear to be paying off as revenue increased gradually throughout 2019. Despite this, the company remains unprofitable as it continues to focus on its rapid expansion and bouncing back from the temporary downturn caused by the pandemic.
Clearly, smooth sailing is not guaranteed, especially as competition in the space is fierce. Opendoor attracts sellers by promising greater contract flexibility and Redfin has created discounts for consumers who both buy and sell properties, hoping to create an enclosed ecosystem. However, Zillow's advantage comes in the form of something not so easily created: experience. Throughout its years of curating real estate listings, the company's site has averaged tens of millions of unique visitors each month, allowing Zillow to build a wealth of consumer and market data. Now the company uses this to perfect its algorithms, finding ways to provide competitive but profitable offers, helping Zillow effectively assess and reduce risk.
More than that, the company has phenomenal name recognition. Last weekend, SNL made a parody of a Zillow commercial in which Millennials viewed real estate on their site to experience a thrill. This allows Zillow to reduce marketing expenses and pass along savings to consumers.
Undoubtedly, the iBuying sector will heat up in the coming years and players will have to find new ways to challenge each other. Competition is good for consumers, it allows them to compare offers and find one that's right for them. So far, Zillow is playing its cards right, time will tell if it can continue to be successful in the face of mounting contenders.
We have updated our comments on Zillow. Click the stock button below to read it.