Zillow's (NASDAQ:Z) (NASDAQ:ZG) business has polarized investors. Company insiders are bullish and have been buying more stock. On the other side of the debate, short-seller Steve Eisman -- profiled in The Big Short -- has publicly argued his bear case.

In this clip from Industry Focus: Energy, Motley Fool contributor Sanchez and Industry Focus host Nick Sciple explain the bull and bear arguments and what to look for in the stock going forward.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on Sept. 5, 2019.

Nick Sciple: As we talked about earlier, it's very early days for this iBuying businesses, Zillow Offers business for Zillow. The numbers haven't quite been as appealing as we would have liked to see so far. But, the business hasn't reached scale yet. How have investors reacted to this so far? It has been a battleground stock on some of these issues.

Luis Sanchez: Yeah, for sure. Zillow is certainly turning into a battleground stock. There's a lot of smart people on both sides of the bull/ bear debate here. Obviously, Zillow's insiders are super bullish. Rich Barton actually came back to be the CEO of Zillow earlier in 2019 after he went away to work on other projects, including founding different companies and working with a lot of VC-backed companies. It's worth noting that he was a significant backer of WeWork. Other than Rich Barton, there's actually been a lot of insider buying activity at Zillow. The insiders now own more than 15% of the company. So, they clearly believe in the prospect of iBuying long-term.

At the same time, nearly 20% of Zillow shares are held short. Quite notably, Steve Eisman, who is famously portrayed in The Big Short, is also short Zillow. He's done a few interviews where he's described his thesis. He makes a really interesting argument. He basically says that iBuying is a flawed business and points to the negative unit economics of it. He thinks that home flipping reminds them of a lot of the risk taking behavior that he saw in the housing bubble that caused the 2008 financial crisis. In his mind, real estate is an inherently local market, and it's not one that he sees as being conducive to a scale tech platform that other industries might be conducive toward.

Zillow's stock price is actually down since the Zillow Offers business took off. But the trading has been pretty volatile. It seems like investors are still trying to figure out whether or not they believe in this new business or not.

Sciple: Luis, one core question I have here, and maybe this is part of Eisman's case, is what economies of scale do you think come with this iBuying business? We've talked about, Zillow hasn't reached scale yet, that may be some reason behind why the profitability doesn't drop down. But at the end of the day, at the core, these are buying and selling homes. How scalable do you think this business model is for a company like Zillow?

Sanchez: Yeah, I think that's an important question. There's certainly some aspects of this Zillow Offers business that do scale. The tech platform and the software development that underpins it is certainly something that can be done from a centralized location. There's certainly some brand advertising that could happen at a national level. But, yeah, at the end of the day, zooming in on the transaction, the housing market is inherently a local market.

That being said, I think this business can still work for a company like Zillow, even if it is somewhat regional or local. That's simply because even regional housing markets are pretty huge. If you look at the total U.S. housing market, it's something like $30 trillion plus. You can look at where population centers are based. You can look at a market like, let's say, Los Angeles. That metro area has somewhere in the neighborhood of 5% of the U.S. population. Five percent of $30 trillion is several trillion dollars. So, if you start thinking about these multitrillion-dollar markets even at the local level, you can still make the economics work as long as Zillow finds a way to run its regions efficiently.

Sciple: Going from there, Luis, would you be an investor today? If not, what would you need to see to overcome that confidence interval to get you there?

Sanchez: I'm pretty torn. I don't plan on making a long or short decision anytime soon. On the one hand, I wouldn't want to bet against Rich Barton. The guy's founded three amazing companies. He clearly has his finger on the pulse here in terms of the market that he's in. If Zillow is correct about its bet on Zillow Offers, Zillow could be one of the next mega platforms in the tech industry, in the lines of an Amazon or a Facebook. The housing market is huge. It's many trillions in total addressable market. If Zillow can carve out even a modest niche, it'll definitely accrue a lot of value for shareholders.

At the same time, I look at the economics of Zillow Offers today, and the numbers simply don't add up yet. I also see smart guys like Steve Eisman being really skeptical. And I think Steve Eisman makes some good points. I'm pretty comfortable watching from the sidelines for now. I would want to have more assurance that Zillow can achieve better unit economics and that there is a path for scalability here.

I do believe that Zillow has some competitive advantages when it comes to the iBuying industry in general. Clearly, it has a great platform that could lower its cost of customer acquisition vs. some of its competitors. But I'm just not sure yet because it's doing something that's really bold, it's taking a lot of risk, there's also ways that this could really backfire for the company. In other words, I'm happy waiting and potentially buying Zillow's stock at a higher share price, but with more confidence in the business.

Sciple: Yeah, Luis, I would count myself in that same boat as well. I own Redfin. I really do think that the real estate market is ripe for disruption. It's something that hasn't changed in a significant way over time. However, these are some very aggressive bets being made by a large number of competitors in this space. I'd like to see how things play out. When you were last on the podcast, we talked about the Virgin Galactic business and how I wanted to see them launch a few rockets safely before I wanted to buy in. I feel a similar way about the Zillow Offers business. I want them to scale this safely and see that we can make this work before I want to rush and buy in.

However, if someone wanted to take a basket approach and grab Zillow, Redfin, the few folks that are playing in this space, I do expect there's going to be a big tech winner somewhere in the real estate industry. We'll just have to see which one it ends up being, or if there's going to be a large number of winners. As you said this is a very, very large market.

Luis, one last question I do want to ask you, though. Whether or not you want to invest in the stock, would you ever use this iBuyer service as an individual? Why or why not?

Sanchez: I think the iBuying service for consumers is great. You can just fill out the survey, see what the iBuyer would be willing to pay for your home, and who knows? The offer could be really good. You could even pit up multiple iBuyers against each other and see which one gives you the best offer. They're all going to be a little bit different. At the very least, it gives you an out in case you can't find a traditional buyer for your home. Clearly, this is another example of where the consumer wins.

Sciple: Yeah. At the end of the day, the consumer is going to be a winner whatever ends up happening in real estate.