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Where Will Zillow Be in 10 Years?

By Travis Hoium - Jun 22, 2021 at 8:15AM

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This could be the most disruptive company in real estate over the next decade.

Zillow (Z -6.25%) (ZG -6.05%) is in the middle of a massive transformation of its business and could disrupt the home brokerage market in the process. The app that's become synonymous with finding homes for sale and showing the value of homes that aren't for sale could soon be the biggest buyer and seller of homes in the country within a few years. 

Along the way, Zillow could change the way we think about buying and selling homes. Brokers, who are at the center of most real estate transactions, could be part of a bygone era a decade from now, and technology could drive the real estate transaction process. Here's where I see Zillow going in the next 10 years. 

A couple with their arms wrapped around each other standing in front of a house.

Image source: Getty Images.

Offers is the future for Zillow

The first place to look when trying to figure out where Zillow is going is management. The management team has laid out its strategy in housing pretty clearly, and the vision extends well beyond the end of this decade. During the first quarter 2021 conference call with analysts, CEO Rich Barton outlined how he sees the company transforming in a multi-decade vision he has for the company. 

Making Zillow into a real estate transaction company is digitizing and simplifying real estate is the core to everything Zillow is building. This is what it did with Zestimates and it can now do the same with Zillow Offers, mortgages, and other moving-related services. Then, Zillow needs to train its staff and then customers to think of Zillow as the go-to spot for services when moving. 

Turning Zestimates into transactions is the center of this long-term strategy with live offers now available based on Zestimates in limited markets and getting a lot of interest from home sellers. As the company builds out its vision in digitizing real estate, here are the steps to watch for: 

  1. Train staff to think differently: Zillow is "training" employees to think about Zillow as a "transaction" company, and it's also beginning to train customers to think of it that way as well. 
  2. Train customers to view Zillow differently: Tools like Zestimate are now for more than fun; they allow customers to test the water of buying or selling a home and getting a real-time offer, where available. That's a lead-in for customers making transactions with Zillow. 
  3. Bring the full stack together: Zillow is bringing together the tools to offer a full stack of services to customers like selling their existing home, connecting them with a new home, providing a mortgage, and more. We could see a suite of digital tools added to the portfolio to make the process of buying or selling a home much easier long-term. 

In short, Zillow wants to be at the center of your moving experience, and it's uniquely positioned to be a full-stack real estate transaction company. 

Brokers are going to fund the future

The irony -- and brilliance of Zillow's model -- is that real estate brokers advertising on the Zillow platform are actually funding the transition to Zillow Offers. In the internet, media, and technology segment, or IMT, Zillow reported $446 million in the first quarter, $144 million in segment income before taxes, and $209 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Premier agents represented $334 million of that revenue. By comparison, Zillow Offers generated $701 million in revenue in the quarter but lost $58.5 million from operations. IMT is literally funding the rest of the business. 

I highlighted above that Zillow intends to grow the Zillow Offers business, replacing most of what agents do today. If it's successful, it'll be using the agent business to fund the disruption of the real estate agent market. 

Why Zillow is a great long-term buy

In the first quarter of 2021, Zillow generated $701 million in revenue from selling 1,965 homes. That's scratching the surface of the 243,000 homes sold, according to the St. Louis Federal Reserve, so the company has a lot of growth potential. 

Long-term, the opportunity will not only be to expand the buying and selling of homes but reducing transaction costs in the process. Selling a home can cost homeowners tens of thousands of dollars through brokerage fees, loan fees, upgrades, inspections, and much more. If Zillow can reduce transaction costs it could both increase its own margin and be the best buyer in the market for homes. That would be truly disruptive to the real estate market and could make Zillow a great investment long-term

Travis Hoium owns shares of Zillow Group (C shares). The Motley Fool owns shares of and recommends Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool has a disclosure policy.

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