When I think about businesses that completely dominate their respective industries, what comes to mind are large, monolithic entities. Apple with high-end smartphones, Amazon.com in the online retail space, and Alphabet with online search are all multibillion-dollar companies that have created enormous wealth for their shareholders. While I own shares in the first two and am bullish on the third, these are nevertheless relatively mature companies that are unlikely to further appreciate 50 to 100 times in value. The goal as a long-term investor is seeking out these types of investments when they're still small enough to compound your initial outlay many times over for decades to come. With Zillow (NASDAQ:Z)(NASDAQ:ZG) I believe we have a company that is well on its way to dominating an enormous market yet still small enough to provide investors with massive returns.
From humble beginnings
Zillow was founded in 2006 and had its IPO just over four years ago. For such a young company, its growth has been astounding. After making a number of smallish acquisitions in the few years since going public, Zillow has since made three very consequential purchases.
In 2011 the company acquired StreetEasy for $50 million. While this was the largest deal to date, it would pale in comparison with future transactions. It was important because it secured dominance in the New York region. CEO Spencer Rascoff said at the time, "You can't lay claim to being the No. 1 real-estate site nationwide without being No. 1 in New York."
The company then made an aggressive move to acquire larger competitor Trulia in a $3.5 billion all stock deal. While this move was dilutive to existing shareholders, it solidified Zillow's place as the nearly undisputed leader in the online real estate space. This is the type of long-term thinking and planning I love to see from my CEOs.
This aggressive expansion, through acquisition and organic growth, has left Zillow in an enviable position. It currently sports a market cap of less than $6 billion yet is poised to dominate a market many magnitudes that size in the decades to come. Rascoff recently tweeted:
This is an astounding number and speaks to the dominance of Zillow's portfolio of brands. With mobile use becoming more and more prevalent, this bodes well for the future success of the company.
Zillow is not just dominating with new buyers accustomed to searching for products and services on mobile devices. It's upending the old guard as well. A recent press release from the company states that "nearly two-thirds of agent listings on Zillow and Trulia come directly to Zillow Group from MLSes [Multiple Listing Services]." This is an important final step in Zillow's move to become the standard for real estate information and transactions.
One way or another, they're going to get you
The third of Zillow's recent acquisitions was a $108 million purchase of a company called DotLoop. This company "simplifies real estate transactions by enabling brokerages, real estate agents, and their clients to share, edit, sign, and store documents digitally." With this acquisition, Zillow is attempting to be involved in at least a piece of all real estate transactions. Even if a real estate agent shows a client a home in a conventional way, the parties may choose to use DotLoop's services to expedite the closing process.
Ideally, Zillow envisions itself becoming a one-stop shop for everything that a homebuyer, seller, renter, or landlord may need. If it can come close to achieving this goal, shareholders should benefit greatly for years to come. If you don't currently own Zillow shares, I recommend taking a deeper look. I think you'll like what you see.
James Sullivan owns shares of AMZN, AAPL and Zillow Group (C shares). The Motley Fool owns shares of and recommends GOOG, GOOGL, AMZN, AAPL, and Zillow Group (A and C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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