Zillow is having a good August.
After the real estate technology company announced better-than-expected earnings numbers last week, its stock soared by almost $14 per share. The boost probably made a lot of investors happy, but the collateral impact was that it also pushed Zillow’s market capitalization — or the company’s value — into the neighborhood of $18 billion (it was in the mid $17 billion range by early this week).
That’s a massive number that far outstrips any of Zillow’s competitors, and it raises some interesting questions: What role does Zillow have to play in the world of technology giants? And where does it’s massive size take it next?
To answer these questions its worth considering just how much larger Zillow’s valuation is than other large real estate firms.
Zillow went public in 2011, at which time it’s market cap was just below $1 billion. Since then, the valuation has fluctuated significantly, hitting nearly $20 billion in 2014 then falling into the low $3 billion range in 2016. The company’s market cap has bounced around since then, but for the last four years has seen a general upward trajectory, including a big spike this year.
Still, Zillow remains a much smaller company than some of the massive technology giants, which in the case of Amazon and Apple are valued at more than $1 trillion.
However, it’s worth noting that obviously not all of these tech giants were always valued so highly.
Zillow is not a social network, a search engine or a technology hardware maker, so the company it’s most similar to in the graph above is probably Amazon. And once upon a time, in 2005, Amazon too was valued in the $18 billion range.
The online retailer’s market cap grew gradually over the next several years — it took until 2009 for it to double — but it has since seen exponential growth, despite some erratic ups and downs in 2018 and 2019.
Given where Amazon is now, and where Zillow appears to be going, Kerry Grinkmeyer thinks there are some strong similarities between the two companies.
“They have basically the equivalent of Amazon.com in the real estate business,” Grinkmeyer said of Zillow.
Grinkmeyer is a former stock broker and analyst, who after retiring from the finance industry decided to take up real estate and today is both a Keller Williams agent and YouTuber. He noted that Amazon conquered the world by digitizing what had been a paper-based retail world; it is, effectively, the Sears and JCPenney catalogues of the 21st Century.
Zillow has done something similar. Grinkmeyer noted that in the past, agents and multiple listing services collaborated to get their properties to the market. Zillow then came along and put that system online — making it a kind of Amazon for real estate.
The parallels between the two companies have been noted in the past, including by Zillow itself.
But Grinkmeyer went a step further, saying that he ultimately believes Amazon could end up buying Zillow in an effort to get the latter company’s data. He pointed to the fact that current and past CEOs Rich Barton and Spencer Rascoff have sold companies before, that Amazon has made moves into the real estate space, and that smart homes represent a potential data gold mine for whatever company manages to dominate the sector.
“It is the most financially lucrative mining endeavor that anyone could ever undertake,” he added of home-oriented data, which be believes Zillow is in the positioned to dominate.
Grinkmeyer also suggested that housing costs could go down as companies figure out how to harness valuable home-related data.
There’s actually a precedent for that. Decades ago, televisions in the U.S. used to be far more expensive than they are today. However, right now Amazon is selling brand new TVs for barely more than $100. What changed isn’t just that it became cheaper to produce the devices. In addition, as has been reported elsewhere, manufacturers realized they could tap data from “smart” TVs and use them for advertising purposes.
Grinkmeyer envisions something potentially similar emerging out of the data that Zillow collects around home searches and shopping, though of course that scenario is still yet to be realized. Either way, though, he also argued that Zillow’s value is in its data — and Amazon, or potentially a company like Google, may see that as irresistible.
“If you look at Amazon and you ask yourself what is the number one priority once we get through this coronavirus, I think you’d say, it’s to turn my home into a smart home,” he said, adding that with Zillow’s current market cap only one of the tech giants could really afford Zillow in terms of seeing the company as an acquisition target.
Still, there is reason to take talk of market caps and valuation with a grain of salt. Real estate consultant Mike DelPrete, for example, described public company valuations as a “dark art” and hard to predict. And he told Inman that what’s going on may be as simple as many people moving during the pandemic. Zillow is the best place to look for homes, he added, so investors are saying “‘let’s invest in Zillow; they’ll figure out how to make money.'”
And there are plenty of examples of companies that have head scratching market caps. Perhaps the best one these days is Tesla, which is currently valued at more than $262 billion — nearly ten times the valuation of Ford, which sells far more vehicles.
What happens to Zillow going forward remains to be seen. But for now, at least, the company itself has drawn comparisons to Amazon: Last fall, Barton commented on his company’s shift to iBuying by saying that Zillow had “to move from a Google mindset to an Amazon mindset.”