Earnings season always provides unique insights into the top publicly-traded companies in the industry. It’s an inside look at who’s making money, who’s losing money and what trends companies are following.
Here are five of the biggest takeaways from second-quarter earnings released over the past two weeks.
Zillow’s business shift happened quickly
In the second quarter of 2018, Premier Agent accounted for more than 70 percent of all of Zillow’s revenue. Zillow Offers launched that quarter and it was too new at the time to even report revenue.
Fast forward to a year later and Premier Agent accounts for roughly 38 percent of the company’s $599.6 million in revenue and the total Zillow Homes segment – the portion of the business under which Zillow Offers operates – accounts for 41 percent of the company’s revenue.
Expect that number to keep climbing as the company continues to enter new markets and buys even more homes. It’s reasonable to expect Zillow Homes to account for more than 50 percent of the company’s revenue in the third quarter of 2019. Zillow’s own outlook estimates that Zillow Homes will pull in $348 million to $370 million of a total $694 million to $727 million in company revenue. By comparison, Premier Agent is expected to stay around $233 million to $238 million.
There is, of course, a school of thought that the company’s shift happened too quickly. Wall Street had a strong reaction to the company’s second-quarter of 2019 earnings results, wiping out nearly $15 per share to trading around $35 per share on Wednesday.
Wall Street isn’t moved much by profitability
In a year when so-called “tech unicorns,” like Uber, Lyft, and recently WeWork are all either public or heading toward initial public offerings while posting huge losses, Wall Street isn’t impressed by companies that repeatedly report net profits each quarter.
In the week following the release of its earnings, Realogy’s stock inched up slightly but was still trading at under $6 per share on Wednesday. RE/MAX’s stock has dropped about $4 per share in value on Wednesday, since it reported its earnings.
Everyone is racing to simplify the transaction
Moving to simplify the real estate transaction is the latest trend that it seems everyone in the industry is leaning into these days. Redfin is perhaps making the biggest move in the space, with the launch of Redfin Direct, which allows unrepresented buyers to submit offers on Redfin-listed homes in certain markets.
Redfin CEO Glenn Kelman said the percentage of Redfin-listed homes in Massachusetts and Virginia selling to unrepresented buyers remains in the “low single digits,” but, in the future, he hopes “to be able to sell 10 percent of listings to an unrepresented buyer.”
At the same time, both RE/MAX and Keller Williams are working around the clock on technology development to roll out their consumer-facing platforms to simplify the experience of buying and selling a home.
EXp Realty is rolling out affiliated services to provide mortgage, title and escrow, home warranty and moving services for consumers working with an eXp agent.
Companies are split on the state of the market
Many of the top brokerages experience little or negative growth in transaction volume in the second quarter of 2019 due to an uneven housing market. RE/MAX CEO Adam Contos believes there’s a “fear factor,” holding the market back, but he’s cautiously optimistic about the rest of the year.
“As we move through the second half of 2019, we remain cautiously optimistic that the U.S. housing market will show signs of improvement,” Contos said. “Given lower interest rates, solid demand, and increasing inventory, the ingredients are there to spur increased home sales, but supply and affordability remain overhangs.”
Realogy CEO Ryan Schneider is also forecasting his own company will see positive transaction growth in the third quarter, with sequential growth in the fourth quarter – after a 3 percent decrease in transactions year-over-year in the second quarter.
Keller Williams’ Chief Economist Ruben Gonzalez is less bullish about the overall housing market.
“We forecast a decline of 3.5 percent for existing home sales to end 2019 and for prices to end the year up 3 percent,” Gonzalez said. “Recent market turmoil and policy changes likely represent a downside risk to our forecast as they persist.”
The industry is focused on high-quality leads
Both Zillow and realtor.com are moving more toward lead referral platforms – where agents only pay a portion of their commission on a closed lead versus an upfront cost.
The changes haven’t always been easy, however, especially for realtor.com which saw some backlash from agents to the change and has experienced some staff shake-ups, which were partially attributed to the acquisition of Opcity and the resulting changes.
Zillow is expanding its lead referral platform to Atlanta and Phoenix – both Zillow Offers markets – at a time when Premier Agent churn has finally returned back to normal.
Zillow executives, on an earnings call, said the goal was to get better lead distribution to better agents – which works in conjunction with the ‘Best of Zillow’ platform – which creates a better experience for the consumer and overall drives more transactions through Premier Agent.
Realogy, meanwhile, is focused on getting better quality leads to its agents through a new partnership with tech giant Amazon. The partnership will provide select Realogy agents leads and referrals from Amazon, while consumers get value from Amazon in the form of smart home products and services.
“The world is awash in low quality, low conversion online leads, that the lead tends to be nothing but an email address,” Schneider said. “We’re really excited by Turnkey because we think it will be an incredibly high-quality lead because it’s both a live customer ready to talk to an agent, incubated by our Ojo Labs partnership, but its also a customer that’s excited about the value proposition of Amazon Home Services both on the smart home and the move-in support.”