Rich Barton is happy Zillow made the choice to stop its disastrous iBuying program a year ago.
“Twelve months later, we feel we have made the right decision to end our iBuying operations, especially given how this year has gone and I am pleased that as of September 30ewe no longer have any inventory on our balance sheet,” the company’s co-founder and CEO told investors during Zillow’s third-quarter earnings call Wednesday night.
But while Zillow executives were happy to discuss the downfall and cleanup effort stemming from the company’s failed iBuying venture, they were less open about the details of the “great housing app.” “, the leaders have been teasing since the beginning of the year.
“Zillow’s vision of a super housing app is to create a unique digital experience to help customers through all of their real estate needs, including buying, selling, financing and leasing, serving as an ecosystem of connected solutions for all moving-related tasks and services,” said Barton. “Customers want this great app. This is a very big business opportunity and given Zillow’s brand strength, audience and technology capabilities, we are in an advantageous position to deliver.
Executives noted that continued growth and developments related to the company’s “Five Growth Pillars” would be key to solidifying and executing their vision for Zillow’s super housing app. Although the company isn’t there yet, Barton and Zillow’s chief financial officer, Allen Parker, said the company’s performance in the third quarter of 2022 puts it on the right track.
Revenue was down 12% year over year for the quarter to $438 million.
Zillow’s net income loss of $53 million improved significantly from the third quarter of 2021, in which iBuying activity resulted in a loss of $329 million, but was down from the $8 million net income loss it suffered in the second quarter of 2022.
We all fall together
Like real estate agents who buy advertising on its platform, Zillow has suffered from the real estate slowdown caused by soaring mortgage rates.
“We’re not immune to housing market challenges right now,” Barton said. “We’ve seen 30-year mortgage rates climb in recent months to over 7%, a level not seen in 20 years. Large weekly swings in rates also continue to occur. This volatility has impacted our funnel as our relationships suffer as buyers decide whether or not they want to be on the sidelines in this current market.
Despite posting a net loss for the quarter, Zillow executives told investors the company performed better than expected, particularly its IMT segment, which includes offerings such as marketing, software and first officer. Overall, the segment generated $457 million in revenue, down 5% year-over-year, with Premier Agent contributing $312 million in revenue, down 13% from the previous year. Zillow says Premier Agent’s stronger-than-expected performance was due to better-than-expected conversion rates, conversion rates, customer connections and retention rates, while the year-over-year decline was attributed to the general market slowdown housing.
With the housing market slowing, analysts and investors feared Premier Agent’s relatively strong performance would continue as agents seek to cut costs and deal sides dwindle. Zillow, however, remains positive.
“We continue to see demand from our customers slightly stronger than the industry and we are seeing our core transaction rates from that demand improving and they are slightly above our expectations,” Parker said. “As Premier agents seek to secure quality leads in a tough market, what we’re seeing is that our top performing agents are leaning on our platform and so we’re seeing pretty strong retention around our best partners.”
It’s time to experiment
As Zillow seeks to further test concepts for its super housing app, executives said it plans to continue expanding some of the pilot programs it launched this year. Currently, pilots include real-time tour booking functionality, which is currently only available in Atlanta, changes to Premier Agent, which it began testing in Q2 in Raleigh, and Denver, and the Zillow Home Loans partner network, which is also being tested in Raleigh.
“We have a partner who has created a team uniquely designed to serve Zillow customers to provide a much more integrated customer experience,” Barton said. “Now, with an adoption rate of Zillow home loans of approximately 15% by customers in Raleigh, our new approaches to serving Zillow customers in this market give us increased confidence in our strategy to integrate and improve experience with our mortgage products.”
In addition to these initiatives, Barton noted that teams from both open door and Zillow are working hard to launch a joint product, the result of the companies’ strategic partnership announced in August, in the first quarter of 2023.
Even as the housing market, brokers and agents face strong headwinds in the fourth quarter and into 2023, Zillow executives say the company has a bright future.
“Having directed Expedia until 9/11, Zillow through the financial crisis in 2008 and the onset of COVID in 2020, we have the experience of staying relatively stable on gas when others slam on breaks,” Barton said. “We are well aware of the dangers on the road, but our vehicle is loaded and handling well, and we see opportunities on the road ahead.”