Specialist
Former senior executive at Zillow Group Inc
Agenda
- Zillow’s (NASDAQ: ZG) operating environment – Offers and iBuyer wind down and implications on long-term priorities
- Feasibility of 2025 revenue and margin targets
- Zillow’s PA (Premier Agent) business outlook – Flex programme penetration, down-to-flat home pricing environment implications and product roadmap
- Implications of Zillow’s acquisition of ShowingTime
- Outlook for 2022 and beyond – scalability and profitability of ancillary categories
Questions
1.
Now that Zillow has exited the iBuying side, it is doubling down on what it can do in and around the USD 300bn residential real estate plus rental, mortgage, title and escrow market. It seems to be a function of a USD 360,000-370,000 average home price, of which there were 6.1 million transactions in 2021. That can be doubled up with the buy and the sell side, on which you can tack various fees such as 5% on commission, 0.5% on mortgage origination, 1% on escrow and 0.2% on moving costs. That gets you to USD 25,000 in home-buying fees that you can make on every given transaction on both sides. How is the total market opportunity moving around? Which of those moving parts are important to monitor?
2.
How long do you expect the 5% commission to be around for? You can decouple it buy vs sell side. There seems to be some regulation around placing more transparency on the buyer side of the commission that you seem to be alluding to, so does 5% turn to 4% fairly quickly?
3.
Is there a good way to think about historical precedent of how much the institutional investors drive the 6.1 million homes that are moving in a given year, at least of late? Is that significant? How should we think about the impact as we monitor whether they upkeep the participation they’ve been showing lately?
4.
Is it correct that there’s a commission impact on institutional investors because of the volumes they purchased at one time? Did I hear 75bps vs what you could probably call typical 2.5%?
5.
Zillow’s business trajectory is now very different because it’s considering wind-down offers so has put out new targets. I think it’s USD 5bn in revenue by 2025, but after stripping out ancillaries – so when you consider the PA [Premier Agent] plus home loan and closing services business – the company is aiming to get from just over USD 1.6bn to USD 3.8bn over the next 3-4 years. That’s a 23% CAGR of which the PA is over 80%, home loans are about 15% balance with 3% from closing services. PA is growing at 33%, home loan at 41% and closing services at 2.5x. Do you think reaching USD 3.8bn from those three areas by 2025 might be difficult? Which parts of the overall strategy might be a little bit over-optimistic, if at all?
6.
What do you think a proper or successful attach rate might be for Zillow on the mortgage side? After speaking to brokers, it seems to be sub-10%. When we think about PA having done 360,000 transactions, is it less than 30,000 of those that the company is touching with home loans?
7.
Is Zillow’s mortgage side fairly profitable? I think the company is trying to grow the margin profile from 39% to 45%. Does a lot of that come from the mortgage side? What kind of margin accretion does that come with, even if the company does reach the 5% attach?
8.
You mentioned 12.2 million transactions seems to be a reasonable estimate for Zillow in 2022 and 2023. What might that sort of transaction retrace to if we approach a slowdown on the residential home market side, given the company has 12.2 million straight-lined out for now until 2025?
9.
Do you think Zillow improving top-of-funnel engagement is very likely? Alternatively, might any sort of improvement on the transactions the company touches occur much more on the lower part of the funnel? It talks about gaining share, claiming to touch two-thirds of the total 6.1 million buyers out there. Could it touch much more than 4.1 million of the 6.1 million buyers in any given year?
10.
Are there other software tools that you think might be more sticky if the top agents don’t enjoy the Zillow tech as much as other areas? I think of the fact that top agents could probably build out their own SaaS-based offering through Lone Wolf or SkySlope or even database tools such as CoreLogic and Red Bell from Black Knight and HouseCanary.
11.
Do you expect the number of tours that ShowingTime can generate to fall precipitously as a function of its October 2021 acquisition by Zillow? You mentioned the MLSs [multiple listing services] might not be happy about this acquisition. I think ShowingTime showed 63 million homes in 2021, so probably multiple tours per listing. How do you think about the listing loss risk?
12.
ShowingTime likes to talk about having triple the conversion rate vs any other PA mechanism. If you break it out and take 305,000 buy transactions out of the 4.1 million being touched by Zillow, the conversion rate seems to be 7.5%. If Zillow does touring in-house for less than one-third of the transactions, then it could use ShowingTime for two-thirds of the transactions. Is that a best case of the 15-18% conversion rate, or do you think the conversion rates won’t tick up that quickly, even over four years?
13.
Zillow thinks it will get to 730,000 transactions closed and that’s coming from 360,000, of which the vast majority of it is still buyer, for many of the reasons we’ve discussed. What are your thoughts on reaching 730,000 out of what would probably be a stable 12.2 million transactions on both sides, considering 5% buyer share and sub-1% seller share? Is that a lofty goal?
14.
Do you expect a reduction in seller leads now that Zillow exited Offers? The company did 55,000 on the seller side and I assume a lot of that’s involved with Offers because they’re a good way to get a warm seller lead.
15.
What might be a more attainable transaction goal for Zillow, if not 730,000? Can the company at least reach 500,000-600,000, given it’s perhaps driven 100% by the buyer side?
16.
Zillow is aiming to grow the revenues it can make on the 450,000-500,000 transactions from USD 4,100 to USD 5,200. Are there moving pieces that provide that sort of an upside? What could give the company a way to grow the ramps for transaction?
17.
You mentioned perhaps 5% success on the mortgage side. Is it even a few percentage points on the title side, given it seems to be something that Zillow is less historically entrenched in?
18.
How much can the growth of Flex also contribute to Zillow’s revenue per transaction? If you run the economics of USD 366,000 home price and 2.5% commission, of which Flex has probably taken a 35% share, that’s already over USD 3,600 of that USD 4,100. Do you expect Flex to represent over 50% of the transactions touched over time? How should we think about the Flex programme expanding?
19.
Could Flex’s 35% share of Zillow’s revenue per transaction face pressure, to the extent that you already mentioned, so agents and brokers aren’t trying to give any of the commission pie away?
20.
Do you have any concluding thoughts on Zillow, whether on culture, leadership or anything we didn’t cover?
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