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Redfin and Zillow Are Both Evolving, But in Surprisingly Similar Ways

By Jason Hall, Tyler Crowe, and Deidre Woollard - Dec 19, 2020 at 6:45AM

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Two businesses that started out very differently could end up looking more and more similar over time.

Popular real estate websites Zillow Group ( Z 2.03% )( ZG 2.13% ) and Redfin ( RDFN 2.44% ) are actually quite different businesses, though they tend to cater to the same groups: homebuyers, sellers and real estate professionals. Both companies are helping to disrupt an industry that hasn't changed much in decades, making for a better, more efficient transaction and experience. 

One of the surprising things that's happening is how these two businesses are evolving and appear to be reaching similar conclusions about where the future lies. On the Nov. 6 edition of "The Wrap" on Motley Fool Live, host Jason Hall, Motley Fool and Millionacres contributor Tyler Crowe; and Millionacres editor Deidre Woollard talked about where the two companies are headed in the future. 


Jason Hall: Zillow and Redfin, a lot of people just assume they're the same thing. One's a green apple, one's a red apple. That's not really at all the way it is. Deidre, tell us a little bit about how Redfin is different and how their quarter went.

Deidre Woollard: Well, I think the question is, are they becoming the same apple? Because in the beginning, they were very different.

Zillow was just selling leads and things like that and Spencer Rascoff, when he was the CEO, long time ago, used to call it Zillow was a media company because they weren't involved in real estate. Now, that's totally different.

Redfin has always been a brokerage and has expanded more slowly because it's gone market-by-market as a brokerage that offers discount fees. Their core business has been and will continue to likely be offering discounted services. They had a strong quarter, but the revenue decreased 1% year-over-year to $237 million during the third quarter.

Their iBuying business was basically nothing during the third quarter. They only sold 17 homes through Redfin Now. Glenn Kelman said he doesn't really see it ramping up until probably middle of 2021 because right now, they're just in the buying phase of starting to buy more homes. Then there's always that lag between having to get the homes. They buy the homes, they fix them up, and then they put them back on the market. That's some of that lag there.

But the good news is that talking about mortgage a little bit, their mortgage business generated their first quarterly profits ever. Glenn Kelman was really excited about the potential for mortgage because they're trying to get licensed in a lot of the key West Coast markets. They see that as a huge area of expansion for Redfin.

Jason Hall: Yeah. It's a good business to be in if you can make the dynamics work. I think with Zillow and Redfin especially, it's getting to profitability is an important step. I mean, there's no doubt about that. They've invested a lot of money to build out a platform to expand. They're moving in the right direction.

Again, I think the key with Zillow and Redfin both is figuring out what the market is going to look like. That's figuring out what the balance of different services that they can offer. They're going to generate the best growth and be the right balance between all of the disparate parties that make their money in real estate, some of which are going to be operating on the same platform and competing against one another.

Deidre Woollard: Well, yeah, and for Redfin, what Glenn Kelman said was the issue right now is that they don't have enough people.

They've seen a massive amounts of demand, their traffic on their website has grown. They broke into the big three of websites, now they're one of the, just as they've taken on more markets, Redfin has a really great app and a really great search experience on their website. So they're getting more and more traffic and they're getting more and more requests for tours.

But they haven't had enough agents. They furloughed a bunch of people early in the year, they brought them back, they hired another 278 agents in this quarter. But they're also looking to expand their network of partner agents and contractors that they hire to basically show a home, be kind of the door opener. The way Redfin has really grown and the way it disrupts real estate, it's breaking down all of the different parts of the real estate transaction and then figuring out how to make them more efficient and more cost-effective.

Jason Hall: It's interesting, this is a company we think of as a tech business, but its biggest challenge is navigating the cycles and having the right manpower balance as it goes through these cycles. That's not a common conversation you have about any tech company when you're coming through earnings. That's an interesting take. I think that's a really, really interesting take. Deidre, any last thoughts on Redfin?

Deidre Woollard: One thing that I was surprised is that they didn't address the recent lawsuit that just came out, they were sued by the National Fair Housing Alliance and some other groups for practicing what they call digital red lining because Redfin, they won't take homes that are priced below a certain threshold in certain markets. The lawsuit is saying that's a discriminatory practice.

Glenn Kelman is usually very upfront about things like that, very proactive about diversity, which you talked a little bit about on the earnings call. But they didn't address the lawsuit, which I thought was interesting, and it didn't come up on the questions either.

Tyler Crowe: I had a quick question and I think this would be interesting. We talked a lot about on the conference calls, what's going on at the businesses of Zillow and Redfin specifically. But Deidre, if looking at both of those, what were some maybe the big housing market takeaways that you saw from both of them together and though "wow, that I didn't see that until going through those conference calls."

Deidre Woollard: I think that they both don't really know what's going to happen next. They both were caught a little flat-footed by how fast the market ramped up. I think they both know that what goes up must come down, but neither one of them really knows how that's going to work out. But they're both so focused on mortgage and on title and really trying to build out their services, because I think they see that as a way to cushion things if things suddenly shift.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
$54.08 (2.03%) $1.07
Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
$53.50 (2.13%) $1.12
Redfin Corporation Stock Quote
Redfin Corporation
$39.09 (2.44%) $0.93

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