Deutsche Bank thinks the value of buyer and seller leads generated by Zillow is underappreciated by Wall Street.

Since CEO Rich Barton retook the helm of Zillow in February 2019, the company he co-founded has been focused on massively scaling Zillow Offers, its direct-to-consumer homebuying and selling business.

In less than a year, the company more than doubled its revenue, passing $1 billion in the first quarter of 2020, before the pandemic really took hold of the U.S. economy. For comparison, Zillow posted similar revenue for the entire year of 2017.

And yet that Zillow Offers business — which falls under the “homes” segment of the business — has very little to do with why Deutsche Bank upgraded the company’s stock on Wednesday to a “buy rating” with a target point of $106 per share. Zillow was trading around $88 per share during the late afternoon.

In a note, a team of Deutsche Bank research analysts said they “see a nice upside potential to Zillow’s shares predicated almost entirely on the core [internet, media, and technology (IMT)] segment with limited direct value attribution to the homes segment.”

They added, “We see a path for the homes segment to drive more shareholder value as the company irons out the mortgage attach business, but we do not believe it needs to work for us to be bullish on Zillow’s shares, and would view improving unit economics in the homes segment as a bull case further down the road.”

It’s in fact Zillow’s Premier Agents and lead business, which was long its revenue leader until Zillow Offers came along, that has made Deutsche Bank confident in the Seattle-based real estate technology company.

“Better [Premier Agent] lead flows and conversion with ‘Schedule a Tour’ have driven higher quality leads that we believe Zillow can monetize over the next year,” the note reads. “Perhaps more exciting, we see the seller leads coming off of the Zillow Offers business likely to scale in 2021 at a healthy revenue share and with a broader scope than we have historically envisioned — the product includes buyer leads.”

The analysts “think both of these are underappreciated by investors and largely not in [Wall Street] estimates.”

Zillow transitioned its Premier Agent business in 2018, which meant the company would first verify a lead, then connect that lead directly with an agent, as opposed to sending agents a high volume of low-quality leads. Higher-than-expected churn led the company to walk back some of those changes.

The note, co-authored by Lloyd Walmsley, Kunal Madhukar, both research analysts, and Chris Kuntarich, a research associate, says that the company seems to have gotten churn under control and the Premier Agent business on a more stable footing.

Overall, the company should continue to benefit from the pandemic-fueled housing market, which Deutsche Bank says could manifest itself as a multi-year increase in transaction activity. Zillow is coming off a record month for traffic to its website.

Mike DelPrete, a real estate technology advisor and occasional Inman contributor who’s closely watched the iBuyer space, told Inman that he’s been talking about the value of seller leads generated by Zillow Offers for years and is happy to see investors finally catching on.

“Zillow Offers isn’t about buying and selling houses — I think I’ve said the same at every Inman conference — it’s about capturing consumer eyeballs,” DelPrete told Inman. “The real magic is getting those seller leads early and monetizing them across the Premier Agent network.”

Email Patrick Kearns

Zillow
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