Zillow (Z +2.04%) (ZG +2.54%) is the premier internet-based real estate service in the U.S. Many people are familiar with its Zestimate capability, which enables homeowners to track the value of their property without contacting anyone. The ability to anonymously look at mortgage and refinance rates is another important offering for users. But these features are just the tip of the iceberg when it comes to Zillow's information database and the analytics the company has made available to the public, real estate agents, and the media.
Image source: Zillow Group.
Show me the data
By browsing Zillow research, you can find everything from housing trends to local market data. Before Zillow, the go-to source for housing data was the Case-Schiller home index, which was developed in the 1980s and consists of 20 metropolitan statistical areas. Zillow, on the other hand, has developed a much more refined database, and as a result, its housing data covers 350 different metro areas with information about housing sales and rentals as well. The company assembles data, categorizes it, and presents it in a meaningful way -- all for free.
The company also uses a much more comprehensive approach to create its database. For example, the Case-Schiller only compares values of homes that have been sold twice inclusive of foreclosure sales. This can muddy the data as only a small portion of the market is included, and prices for an area are affected by distressed sales -- keep in mind this database was created well before the internet was widely available.
Zillow uses a proprietary database that consists of information culled from prior home sales, county records, tax assessments, real estate listings, mortgage information, geographic information system data, and input from homeowners. The company then ascribes Zestimates to the value of 110 million homes in the U.S. which it updates daily. These values are all part of the database, which is used to calculate the median value by home type, price tier, and region.
Why all the free data?
As a shareholder, you may be asking yourself why a public company would spend all this time, resources, capital, and energy to give away such valuable information free of charge. The answer is in the brand. By building this brand awareness, it ultimately attract as many buyers and sellers to its website as possible. The more buyers and sellers that use the site, the more real estate agents will be willing to subscribe to Zillow's Premier Agent program where they pay to be shown exclusively on their own listings and on non-Premier Agent listings in specific zip codes.
So every time a media outlet uses Zillow's data, they must name Zillow as the source -- free publicity for the company. In addition, the company uses the data to create reports that it presents at various functions from government forums to Premier Agent events. These reports give real estate agents valuable knowledge that they can utilize to help get more listings by demonstrating their knowledge of the market to prospective clients. Homebuyers are also influenced directly by the information on Zillow's website and as a result, recognize Zillow as the No. 1 site for real estate on the internet. In its last quarterly report, Zillow management shared that the site captured 75% of the total market share for the mobile-only real estate category.
Investors should be happy
Data by YCharts.
Zillow stock performance speaks for itself. As a company, it has a dominant share of the real estate audience, and as an investment, the share price has risen over 60% in the past 12 months. Shareholders should know that the company's proprietary data helps it to stand apart from competitors and provides a moat for the business. That moat translates to knowledge that just may make Zillow's management the smartest guys in the room -- and what better way to invest than with a management team that shares this knowledge with customers?
