Zillow posts bigger net loss than expected in Q1

The real estate giant beat revenue expectations, but losses rose from $4.6 million last year to $18.6 million

In an earnings report today, Seattle-based Zillow Group, the operator of listing portals Zillow, Trulia, StreetEasy and RealEstate.com, posted an $18.6 million net loss in the first quarter, up from a $4.6 million loss a year ago. The real estate giant posted a higher net loss than expected, but beat its own revenue expectations. The company posted revenue of $299.9 million in the first quarter, a 22 percent year-over-year increase.

As usual, most of the company’s revenue came from Premier Agent advertisers. That program pulled in $213.7 million in Q1, up from $175.3 million in first-quarter 2017 — a 22 percent increase.

Zillow Group also reported that traffic to its mobile apps and websites reached more than 175 million unique users in the first quarter, up 5 percent year over year.

“First quarter 2018 revenue growth was driven by strength in the Premier Agent, Rentals and New Construction marketplaces,” said Zillow Group CEO Spencer Rascoff in a statement.

“This year, we are taking our business beyond lead generation by creating better experiences for consumers and further strengthening our partnerships with real estate professionals. Our opportunity is expanding with the introduction of innovative products and services, like Zillow Instant Offers, that provide end-to-end solutions for consumers and will generate more home-related transactions across our platforms.”

These first-quarter results come on the heels of, but don’t include, major second-quarter changes, including Zillow’s debut as an iBuyer and an update to its Premier Agent program that filters quality buyer and seller leads directly to agents 24/7.

“The linchpin in our strategy is Zillow Group’s commitment to connecting consumers with great real estate professionals and delivering a faster, more efficient home shopping process, while providing those professionals with technology and services to better serve their clients, close more transactions and be more successful,” Rascoff said in prepared remarks to investors today.

In the fourth quarter of 2017, Zillow Group posted record revenue of $282.3 million and increased its full-year revenue to a record $1.077 billion in 2017. Still, the company did not meet its expectations for a profit in the fourth-quarter, posting a net loss of $77.2 million and a net loss of $94.4 million for full-year 2017.

The company’s revenue expectations for second-quarter 2018 stand between $322 million and $327 million and between $1.433 billion and $1.578 billion for full-year 2018, up from last quarter. The company did not include forecasts for expected net income or net loss in this report.

Expenses and revenue

Zillow Group’s Q1 expenses clocked in at $311.2 million, up from $244.6 million a year earlier. Sales and marketing expenses in the first quarter accounted for 46 percent of revenue at $137.3 million. Technology and development costs were 31 percent of revenue at $93.9 million. General and administrative costs were 19 percent of revenue at $56.1 million.

Besides Premier Agent, other sources of Zillow Group’s revenue in Q1 include:

  • Other real estate revenue — $38.1 million in 2017, up 33 percent year over year (this includes “revenue generated by new construction and display, as well as revenue from the sale of various other marketing and business products and services to real estate professionals”). New construction revenue, which rose 69 percent year over year, drove the increase.
  • Rentals revenue — $29.1 million, up 35 percent year over year. This is the first quarter Zillow is reporting rentals revenue separately.
  • Mortgages revenue — $19 million, down 6 percent year-over-year.

The company ended the first quarter with more than 3,300 employees and “cash, cash equivalents, and investments” of $823 million.

Premier Agent growth

Premier Agent revenue made up 71 percent of Zillow Group’s first-quarter revenue, same as its overall revenue in 2017.  Premier Agent revenue per visit rose 6 percent on an annual basis in the first quarter, up from 1 percent year-over-year per visit growth in the fourth quarter.

Of total Premier Agent bookings for the first quarter, 70 percent were sales to existing Premier Agents, up from 63 percent in the fourth quarter. Total sales to Premier Agents who have been customers for more than one year rose 38 percent year over year in Q1.

At the same time, the number of Premier Agent accounts spending more than $5,000 per month grew by 58 percent year-over-year and increased 58 percent on a total dollar basis, the company said.

Zillow Groups anticipates Premier Agent revenue will come in at between $228 million and $230 million this quarter and between $917 million and $927 million for all of 2018 — higher than previously anticipated in the fourth quarter.

Next steps

Rascoff said the company anticipates that the integration of its dotloop transaction management tools with its Premier Agent app will be complete by the end of the second quarter.

“Today, we estimate that more than one third of all U.S. real estate transactions are closed with dotloop. Many of the more than 350,000 agents using dotloop monthly do so independent of advertising with us, so we believe this integration also represents an opportunity for incremental advertising dollars,” Rascoff said.

“Once the integration is complete, agents who use the app and dotloop will have full visibility into the efficacy of their Premier Agent advertising spend, which we believe will ultimately lead to increased spending with us over time.”

Spencer Rascoff

Zillow signed its first few purchase agreements as an iBuyer in Phoenix last week, according to Rascoff. He said the company has a waitlist of nearly 1,600 agents and many brokerages “anxious to participate” in Zillow’s Instant Offers program once it launches in their cities.

“Zillow Group has structural advantages that position us to succeed with this service, including our audience size, brand recognition, agent and broker partnerships, adjacent home services, and deep data expertise,” he said.

The company does not expect to begin selling homes until the third quarter and forecasts holding an estimated 300 to 1,000 homes for resale as of December 31, 2018.

Zillow anticipates paying agent commissions that are consistent with what other investor buyers would be paying, Rascoff told investors during an earnings call today. “We will be paying commissions that are locally consistent with what other investor buyers would pay at scale,” he said.

Zillow will not be renovating homes before flipping them, but rather doing the kind of sprucing up a seller would otherwise do, such as cleaning carpets or adding a coat of paint, according to Rascoff. “Don’t think of it as a full remodel, think of it as a touch-up,” he said.

Rascoff hinted that, over time, the company will get good at merchandizing its own properties, which could eventually lead to another ad product for listing agents.

Editor’s note: This story has been updated.

Email Andrea V. Brambila.

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