When a stock soars to the moon, companies often use their inflated equity to acquire other businesses. With its impressive stock turn around, Zillow is stalking firms that can support their fast growing instant-offer biz model.
That’s what I hear from companies who are wishing on a dream to be acquired by Wall Street’s darling of real estate.
My gut tells me that something big may be coming, and it may be a head-turner. Big, brash and bold — that is Zillow CEO Rich Barton’s style.
What does Zillow crave?
I see three needs: something that will help Zillow expand its iBuyer footprint; technology to support buying and owning houses; and teams of people who know how to manage property.
Should Zillow acquire Opendoor for, say, $5 billion — presumably locking up the iBuying market? Not an original idea, as years ago Zillow Co-founder Lloyd Frink purportedly floated the idea with Opendoor founder Eric Wu, who shunned the overture. Allegedly, Frink then threatened to beat Opendoor at their own game.
But Wall Street would likely wince at such an audacious move, as it did when Zillow bought Trulia four years ago. Z stock got hammered initially, but the move proved to be as smart as Facebook acquiring Instagram.
How about Realogy? The depressed stock is trading around $7 a share with a market cap of only $832 million — an appetizer for Zillow.
Despite it sizable revenue and enviable profits, it makes no sense. Zillow doesn’t need six real estate brands,16,000 offices and 300,000 real estate agents scattered around the world. Zillow is a technology company that hates overhead.
Compass? No. It represents the same sort of problem as Realogy — and Compass carries a super-sized valuation that currently lacks profits.
Redfin? Now we’re talking
Redfin sports an impressive consumer footprint, offers technology symmetry and is a bite-size market cap $1.63 billion acquisition for Zillow.
One problem: the two companies never really got along. Years ago at Inman Connect, after a panel with Zillow executive Greg Schwartz and Redfin CEO Glenn Kelman, an intense personal face-off unfolded backstage — the tension was palpable.
But there seems to be a thaw in the relationship and more mature heads prevail today. Last month, the two companies inked a deal whereby Redfin sends its listings to Zillow in a handful of markets. (There’s an old adage in mergers and acquisitions: let’s try an operating deal first and see how that works out. In other words, let’s run a 5k before we commit to a marathon.) Keep an eye on that.
Marriage made in heaven? Relocation firms
Another big grab for Zillow might be a relocation firm. These companies already understand how to buy properties (from corporate clients) and know how to work with consumers, manage the houses and unload them quickly.
No one is better equipped to get into the residential on-demand space than a big relo company. I am always scratching my head as to why none of them have made a big move in iBuying. Feels like a Kodak moment, as when the camera company missed the opportunity in digital photos when it had the essential assets to make it happen.
The monster in the relo space is Cartus, which is owned by Realogy, and has managed upwards of four million employee moves for many of the Fortune 500 companies. With more than 60 years in the biz, the firm moves people around the world as efficiently as DHL handles global freight.
Sounds like iBuying to me. A Cartus sale by Realogy would give CEO Ryan Schneider cash to pay down his big debt load of $3.6 billion. But it would also cut off an important supply of guaranteed leads to his broker owners. Schneider would need to hire a bodyguard.
Weeks ago, I floated the idea that Zillow may be eyeballing Frontdoor as a possible acquisition target. The home warranty giant has a $3 billion market cap and is run by former Lyft COO Rex Tibbens. That tip got old early.
More likely Zillow targets are smaller tech players
Think firms with a technology secret sauce on the home valuation side, mortgage or title. Something digital. Or companies in the rental management space, as Zillow is selling and holding (short term) its home assets. With the unfolding iBuyer movement, lots of new businesses will be built to support this mega new housing opportunity. Z is probably waiting to see which of these new start-ups finds its wings.
I also suspect the online portal is playing around with blockchain and crypto because it is all about streamlining arcane financial processes — and real estate is the poster child for reform. The Facebook crypto announcement earlier this week makes it easier for companies like Zillow to dive in more aggressively. Its mortgage arm is an ideal laboratory for this kind of testing.
Zillow is always cooking up something. Let’s see what’s next on their menu.
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