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Zillow is investing heavily in looking houses and investors seem to like it



Zillow Group Inc. believes that "Uberised" consumers want to directly buy and sell homes on their phones, so make even greater investment in real estate buying despite high-risk projections

on Thursday, Zillow

ZG, + 0.46%

said, as part of its fourth quarterly results, it would make more investments in its Zillow Offers service, allowing consumers to easily sell their homes to the Seattle-based company . Zillow, which has seen its stock, gradually loses almost half its value since its launch in the second quarter of 201

8, also announced a mix of jobs among its three co-founders, with Spencer Rascoff, who went down and joined the board, replaced by co-founder Rich Barton.

The Zillow shares tumbled initially after trading on the news, but after business executives predicted that Zillow Offers could add "$ 20 billion in annual sales over the next three to five years" to a conference call with investors, the shares jumped back and jumped about 6%. On Thursday, the shares closed at $ 35.04, which was about 46% from 2018 at most $ 65.57 in July 2018.

Zillow resembled his major transition strategy to Netflix's embrace of streaming video, when the predicted year since streaming would surpass its DVD rental business in revenue. Another comparison that can be made is that properties, such as content, can be very expensive in certain markets.

"I see lots of parallels here when we take Zillow Group in the next phase with what we saw on Netflix when we moved from DVDs via mail to streaming and then to original," Barton told analysts at the conference call. "It's that kind of change." Barton has been to Netflix Inc.s

NFLX, -0.82%

board since 2002. At the end of the call, he made another Netflix analogy. "Can you imagine if Netflix just ignores streaming? You can probably say I'm excited. I hope you are too."

Zillow Offers, officially launched in April 2018, allows homeowners who want to sell their property get one offer from Zillow with an analysis of their home value. Zillow wants to buy, renovate and then sell the properties in 90 days or less. Zillow said, as part of its long-term goals, that it can buy 5000 homes a month, have more than 3,000 loans per month and achieve annual $ 2 billion segment revenue, more than double its size.

But so far, it does not achieve its 90-day sales goals. Zillow said it has bought a total of 686 homes since Zillow Offers was launched, but sold only 177, of which 141 of the sales came in the fourth quarter. Zillow offers are available in seven markets nationwide, with plans to be in 14 at the turn of the year.

These forecasts are not risk-free, and the US real estate market is strong in recent years, incredibly weak. And its movements are hardly profitable, so far. Forbes made a quick analysis and concluded that the 141 homes Zillow was sold in the fourth quarter made it only an average profit of $ 1,723 per home, after factoring in purchases, sales and renovation costs. It also has other competitors, especially rival Redfin Corp.

RDFN, + 2.20%

RDFN, + 2.20%

RDFN, + 2.20%

with Redfin Now.

Zillow's move to real estate purchase and sale gave rise to concerns among its core revenue base – real estate agents, where it accounts for about 70% of its revenue. Zillow said that now is to make real estate brokers core partners in the process.

Ygal Arounian, a Wedbush Securities analyst, said in a result preview that while he "likes [s] the story that Zillow puts together as its next leg of a property destruction," he noted, "Zillow is still in its early stages process and the risk / reward leading to 2019 are currently balanced. "

Another risk is the amount of debt that Zillow may have to accumulate in order to complete its ambitions. The company said it now has $ 1 billion for maximum borrowing capacity to support the rapid growth of the Zillow offer in 2019 and beyond.

Investors can be happy about Zillow's big pivot at the moment, but if it has the ability to become a real estate investor and flips of consumer properties is a question mark that will hang over the warehouse until it turns out otherwise.

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