Zillow, which operates Zillow, Trulia and other real estate sites and businesses, reported a record $1.3 billion in revenue for 2018, a 24 percent jump from 2017. But its annual net loss widened 27 percent to $119.9 million.
Amid this period of fast growth and investment, the company announced a reshuffling of leadership: Rich Barton, who cofounded Zillow in 2005 and served as CEO until 2010, has returned to that position to run day-to-day operations. Spencer Rascoff, the cofounder who stepped down as CEO Thursday, will remain on the Zillow Group board of directors. A third cofounder, Lloyd Frink, will take Barton’s vacated seat as executive chairman.
In a statement, Barton explained:
We are at an inflection point in this quest, and the time is right to shuffle leadership seats.
The changes come as Zillow aggressively steps up Zillow Offers, the I-buyer program it introduced last year. Offers was available in eight markets at the end of 2018, and the firm has targeted eight new ones in 2019.
In its latest earnings report, full-year losses in Zillow’s homes segment came to $62.3 million (against a total loss of $119.9 million) while Q4 losses in the segment were $27.2 million (versus a total of $97.7 million). Last year’s Q4 revenue was $365.3 million, up 29 percent from the same period a year before.
In an analyst call, Barton said the company has had problems with its “premier agent” program and is evolving from listings into a full marketplace.
“We are transitioning our media business models to get much closer to the transaction turning advertisers into partners, who we work closely with to satisfy the high expectations of the ‘Uberized’ consumer,” Barton said.
“[Premier agents] are [our] most established revenue stream and generate the cash flow that enables us to take a big swing on Zillow Offers, as well as mortgages,” he said. “We made some significant changes to the PA model mid-2018 … and the rollout did not go as well as we intended.”
He said the changes caused “elevated churn,” but the company has modified the program “and the churn rate is normalizing. … That said, our PA growth rate was disrupted in Q4 and it will take some time to recover.”
Barton said Zillow is testing a “success-based business model” with premier agents in a few areas to participate more directly in the risks and rewards of the program.
Some investors have questioned the future of the I-buyer model, noting the huge capital needs and narrow profit margins in house flipping. In his most recent newsletter, real estate tech strategist Mike DelPrete reported “early signs that Zillow may be having difficulty selling houses.” He estimated Zillow has purchased 700 homes nationwide through Zillow Offers and had an unsold inventory of more than 500. In this business, “time is money” and Zillow Offers has yet to prove its ability to sell as well as buy, DelPrete said.
Although Zillow has recently emphasized Zillow Offers, Barton stressed the importance of Premier Agent. He told real estate site Inman:
Premier Agent is as important to us as ever … . We know that while Zillow Offers is going to be interesting to lots of consumers, it won’t be to everyone. Those consumers will need fantastic agents who are partners, not just advertisers.
In its earnings release, the company listed targets for the next three to five years, among them purchasing 5,000 homes per month at annualized segment revenue of $20 billion.
The release showed the Zillow website and apps averaged 157 million monthly unique users in Q4, up 4 percent from the same period of 2017.