Zillow Group Sees a Path to $20 Billion in Revenue Within 5 Years

Joe Tenebruso, The Motley Fool

Updated Fri, Feb 22, 2019, 6:26 PM

Zillow Group results: The raw numbers

Metric	Q4 2018	Q4 2017	Year-Over-Year Change
Revenue	$365.3 million	$282.3 million	29%
Adjusted EBITDA	$32.4 million	$70.9 million	(54%)
Net loss	($97.7 million)	($77.2 million)	N/A

Data source: Zillow Group Q4 2018 earnings press release. EBITDA = earnings before interest, taxes, depreciation, and amortization.

What happened with Zillow Group this quarter?

Zillow's massive audience remains perhaps its most valuable asset. More than 157 million unique users accessed the company's mobile apps and websites on a monthly basis during the fourth quarter. And for the full year, people visited Zillow's properties more than 7 billion times. Those figures represented year-over-year growth of 4% and 14%, respectively.

Zillow monetizes its audience in several ways. For example, real estate agents pay to advertise on its sites. The company's premier agent revenue rose 11% year over year to $221 million in the fourth quarter.

Landlords and property managers also pay to advertise their listings. Zillow's rentals revenue grew 21% to $34.9 million last quarter.

Zillow is also building a mortgage business. The company acquired Mortgage Lenders of America in late 2018 to accelerate its plans to become a national mortgage lender. Revenue in Zillow's mortgages segment jumped 26% to $23.3 million.

Yet Zillow's new home buying and selling business perhaps has even more potential than all of its other segments combined. This portion of Zillow's operations is just getting started; the company purchased 499 houses and sold 141 through Zillow Offers in the fourth quarter. That generated a $20 million loss in adjusted EBITDA on $41.3 million in revenue. Yet management believes that the company's homes business could grow exponentially into a multibillion-dollar revenue generator.

Looking ahead

Zillow issued a financial forecast for 2019, including:

Total internet, media, and technology (IMT) segment revenue of $1.246 billion to $1.281 billion, including premier agent revenue of $905 million to $930 million.
Mortgages revenue of $100 million to $115 million.
IMT adjusted EBITDA of $241 million to $266 million.
Mortgages adjusted EBITDA of negative $32 million to negative $22 million.

The company also announced aggressive long-term targets for its advertising, mortgage, and homes businesses. In three to five years, Zillow expects to:

Achieve more than $2 billion in annual revenue and $600 million in adjusted EBITDA in its IMT segment.
Originate more than 3,000 loans per month in its mortgages segment.
Purchase 5,000 homes per month -- thereby generating annualized revenue of approximately $20 billion -- in its homes segment.

Green house figurines on top of four rising stacks of gold coins

Zillow sees massive potential in buying and reselling homes. Image source: Getty Images.

Leadership changes

Helping Zillow achieve these goals will be returning CEO Rich Barton. Barton co-founded Zillow in 2005 and served as its CEO until 2010, when he became the company's executive chairman. Barton is replacing fellow co-founder Spencer Rascoff, who will remain on Zillow's board of directors.

Commenting on the transition, Barton said:

We created Zillow Group in 2005 to make the real estate shopping and purchase process easier. Much of our original dream is just now becoming possible. We are at an inflection point in this quest, and the time is right to shuffle leadership seats. I am excited to be back as CEO. I am incredibly grateful to Spencer for the indefatigable leadership that got us to this point, and I am happy we will benefit from his continued support and counsel as a board director.

Barton also shared his vision for what he believes will ultimately become "a much larger, integrated online real estate company":

In the past year, Zillow Group has become a very different company. We're making strategic investments to broaden the Zillow Group portfolio to move further down the home-shopping funnel, giving today's 'uberized,' on-demand consumers a full spectrum of options to buy, sell, borrow and rent on their terms. The launch of Zillow Offers and the acquisition of Mortgage Lenders of America in 2018 opened our doors to home buying and selling and home loan originations. Adding real estate transactions and eventually seamless mortgages to the Zillow Group portfolio positions us well for the next generation of online real estate and dramatically increases our addressable market.

Still, Barton noted that Zillow would need to invest heavily to bring this vision to reality.

"2019 will continue to be a year of transformation and investment," Barton said. "We're building on our market leadership, the power of the Zillow Group brand portfolio and our culture of innovation to nurture our new businesses, while also partnering with Premier Agents and the industry to delight consumers, and set the stage for our next wave of growth."

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool has a disclosure policy.

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