What to watch for in Zillow’s first post-iBuyer earnings report

Three months ago, a metaphorical bomb dropped.

It was the beginning of November and Zillow was about to report its latest earnings. In the days leading up to the report, the company’s stock was hovering around $100 per share, and at least from the outside there was no reason to assume anything but a typical earnings report was in the works.

And then the bomb dropped: Zillow was getting out of iBuying. The company planned to sell off all of its inventory of homes — an inventory numbering in the many thousands of properties — and Zillow Offers would be history by sometime in 2022.

The news sent Zillow’s stock plummeting, and at less than $50 as of Wednesday, it has yet to recover. Investors, clearly, were rattled.

But Thursday the company is getting its first encore: Zillow is once again reporting earnings, and observers from the worlds of real estate, finance, technology and more are watching closely to see if the company is on the verge of a turnaround or if it’s adrift.

To get a sense of what might be the biggest themes of this earnings season, Inman reached out to several keen industry observers and experts. The responses are all hypothetical, but the takeaway is that the industry generally expects some sort of big pivot from Zillow, either in the near or longer-term future.

Here’s what to watch for during this week’s earnings:

The future of Rich Barton

Mike DelPrete, a real estate analyst and iBuying expert, floated one of the more provocative ideas that could theoretically come up: The departure of Rich Barton.

Barton co-founded Zillow, and his professional identity is wrapped up with the company’s. It’s hard to imagine Zillow moving forward without him.

But Barton’s latest stint in the executive chair has only been going on for three years. He returned to the company in 2019 after a long absence, replacing Spencer Rascoff. Investors cheered Barton’s return at the time, sending the company stock soaring, and he went on to shepherd Zillow through its experiment with iBuying.

Until the end of Zillow Offers last fall, Barton’s tenure at Zillow had also been generally successful with, among other things, the company becoming the second-largest iBuyer in the U.S.

So, it’s possible to imagine that with the iBuying chapter now wrapping up, Barton’s chapter could be winding down as well. Or not. Barton could also have returned to lead Zillow through a more general experimental stage that will ultimately include additional pivots. Time will tell, but the real estate industry has seen executive turnover at other companies amid smaller pivots than the one Zillow is undergoing, so it’ll be worth watching the company’s executive roster going forward.

Leaning into leads

With iBuying out, Zillow now needs to lean into its strengths, and Chris Heller, chief real estate officer for OJO Labs and former Keller Williams CEO, noted that those strengths include a “ton of consumer eyeballs and massive scale.”

Heller envisions this playing out in a few different ways. For starters, he suggested the company could ultimately ramp up its expansion of its Flex program, which is an invitation-only subcategory of the Premier Agent lead generation offering.

“If you look at Realtor.com’s earnings, they just announced part of their revenue increase was due to increased referral revenue, and Zillow is likely experiencing the same thing,” Heller told Inman. “They’re not going to stop selling leads, but I wouldn’t be surprised to see them transition to Flex at a faster rate.”

Heller also suggested Zillow could focus on generating seller leads.

“There’s a huge appetite for it right now, and they never really scratched the surface or capitalized it before, even with Zillow Offers,” he said.

The pivot to power buyers

In the wake of Zillow’s last earnings report, a number of industry observers speculated that the company could pivot to “power buying,” which is a broad category of services that help buyers be more competitive. A common power buying service, for example, is cash backing — meaning a big company buys a house in cash on behalf of a consumer, who then gets a mortgage and buys the property from the company. Power buying has existed for years but is currently seeing explosive growth.

DelPrete was among those who, last fall, floated the idea of Zillow moving into power buying, saying he “wouldn’t at all be surprised to see something like ‘Zillow Cash Offers.’”

The idea, and potential appeal behind power buying is that it’s easier and less risky to do than iBuying. Yes, a company needs a lot of money in order to buy houses on behalf of consumers. But power buying avoids the logistical and financial nightmare associated with repairing and reselling homes. More importantly, it doesn’t require the ability to predict home prices months down the road, which Zillow said proved to be a challenge that contributed to the end of Zillow Offers. As DelPrete told Inman in November, “it’s far less risky.”

“And it puts you more in the mortgage game, which they’re trying to get into next,” he added.

Observers are still waiting to see how this story might play out. DelPrete told Inman this week, for example, that he’ll be watching earnings “for any announcements or signals about what’s next (Zillow 3.0)” — a reference to Zillow’s “2.0” initiative that included iBuying.

Stefan Peterson made a similar point, telling Inman he’ll be watching the earnings report for “indications or a clear announcement about Zillow adding power buyer products (Cash Offer and “buy before you sell” Modern Bridge) to its mortgage services.”

Peterson went on to say that he could see Zillow making an acquisition to accelerate its entry into the power buyer segment. But either way, he is among a number of observers who see power buying as a potentially fruitful, and ultimately likely, pivot for Zillow.

“Honestly, I’m surprised they haven’t already packaged those products into their ‘360’ program with Zillow Home Loans,” Peterson said.

More pain

Whatever pivots happen, the hard times for Zillow may not quite be over. Matt Woods, CEO of Sold.com, told Inman he expects this week’s earnings report to reflect “another rough quarter” for Zillow. The prediction highlights the fact that it was only three months ago that the company pivoted away from iBuying, and in Wood’s view the latest earnings will likely still “reflect the brunt of the pain resulting from their winding down in the [iBuying] business.”

Heading into the report, analysts were expecting Zillow to post higher revenues compared to one year ago, but also a decline in earnings. Financial analytics firm Zacks ultimately concluded that “Zillow doesn’t appear a compelling earnings-beat candidate.”

It’s worth noting that the full impact of Zillow getting out of the iBuying business won’t be felt yet during this latest earnings report, which reflects the company’s finances during the final three months of 2021. Zillow still had thousands of homes to offload during that quarter, but stopped making purchases, meaning the final months of 2021 will look rather different compared to subsequent later periods in 2022 when there will be fewer homes to flip.

The newness of the announcement may also simply mean that Zillow isn’t ready yet to unveil another big pivot; iBuying troubles notwithstanding, DelPrete, for one, said that Zillow’s “core business is pretty good” and “fine-tuned at this point.”

“I wouldn’t expect any major announcement yet,” he added. “Too soon.”

The takeaway, then, is that while most observers are expecting Zillow to do something new at some point, it may simply be too early for fireworks.

“It won’t have the same shock value their last call had,” Woods ultimately concluded about this week’s earnings, “given that we know what’s coming this time. But I expect the results to be painfully bloody.”

Email Jim Dalrymple II