Sources:Zillow is pitching institutional investors on selling 7K homes for ~$2.8B to recover from buying too many, which it blames on its bidding algorithm. (Bloomberg)
In 2017, the online real estate listing service Zillow was one of the hottest tech stocks on the market. At the time, the stock was trading at ~$20, and there was a lot of buzz surrounding it. People loved Zillow, and it had an innovative and easy-to-use user interface. As Zillow continues to acquire properties, it’s growing ever more expensive to maintain its current portfolio of homes. To avoid becoming a property holding company that’s too big to succeed, Zillow plans to sell a large portion of the inventory, with its biggest sale being the 7K houses it owns that cost ~$2.8B to maintain. This sale would represent a 40% to 50% return on investment for investors. Since the listing process is still underway, we’ll call this deal the Zillow 7K auction.
What is Zillow?
Zillow is a real estate company founded in 2005 by Rich Barton, who sold his previous business, Redfin, in 2009. Zillow’s idea came from his frustration when he was looking for a home to purchase. Barton decided to start the company to provide a place where people could search for the best price on homes in their area. Zillow is available on Google Chrome, Safari, Firefox, iOS, Android, and Windows Phone. While Zillow remains the dominant real estate site, Trulia recently announced splitting into two separate entities. The new company will focus on local search, mobile apps, and consumer-facing services, while Zillow will continue to offer insights into real estate trends and market analysis.
How Zillow is pitching institutional investors on the sale of 7K homes for ~$2.8B?
Zillow isn’t selling itself. Instead, it’s pitching investors to sell 7,000 homes for $2.8 billion. Zillow will likely receive some proceeds from the deal, but it is a secondary sale to its parent company, Trulia. So why is Zillow trying to sell the company? Zillow wanted to cash out because the founders were tired of having to run the business. According to a recent SEC filing, Zillow’s founders are tired of being the company’s public face and want to spend more time working on the product. Zillow needs to stay healthy, and if they can sell more homes, they’ll have a better chance of maintaining the value of their business. The company also said its new model could lower home prices by 5% to 10%, depending on location, and could bring down the number of homes it buys by 50% to 80% or more. Zillow’s new strategy might be good for dual buyers, who could enjoy lower rates.
Conclusion
In conclusion, Zillow is the perfect example of the adage: “The: “o hell is paved with good intentions.” It started as a real estate site. Then it became a valuation tool. Then it began to try and compete directly with RE/MAX, which was a disaster. Now it’s looking to offload all the homes it has bought and sold over the years to recoup the money it spent buying them. That sounds good, but it would take another five years and at least $2.8B. That’s a lot of money for a company that lost $1.3B last year and has been bleeding cash since 2012. Why bother with this? Because it can give Zillow’s stock a nice bump on the back of its latest “bargain” and because it’s the last thing RE/MAX has on its radar.
FAQs
1. How does Zillow know how much it’s losing?
Zillow is getting help from a third-party company with a database of Zestimate values for homes in the US.
2. What does Zillow mean by “too many”?
It implies that Zillow’s algorithm was bidding up on too many homes.
3. Does Zillow have the plan to get back to profitability?
Yes, Zillow has the program to get back to profitability.
4. What are the main problems that Zillow is trying to solve with this sale?
Zillow is trying to recover from the “bidding” problem that it had experienced in the last few years. The company was seeing that homes were selling for more than they should, and that the number of homes for sale was declining.
