The sizzling-hot residential real estate market lifted all segments of Zillow (NASDAQ: Z) (NASDAQ: ZG). The real estate search giant notched consolidated first-quarter revenue of $1.2 billion and a net income of $52 million.
Zillow's Internet, Media, & Technology (IMT) segment is still the primary driver for the company, as its revenue bounced up 35% year over year to $446 million. Within that section, Zillow's Premier Agent revenue grew by 38%. This is due to the incredible real estate market that has buyers submitting so many leads to Zillow's partner agents.
Traffic to Zillow's apps and websites was at 221 million average monthly unique users, up 15% from a year ago. The segment's income before income taxes was $144 million. This continues to be the profit engine for Zillow. It also bears noting that the first quarter of last year was mostly pre-COVID-19, representing the start of a normal market and just the beginning of the real estate market shutdown.
The IMT segment isn't just about selling leads. It also contains a few other nascent revenue streams that warrant a second look -- in particular, rentals, new construction, display advertising, and business technology solutions for real estate professionals. Rentals revenue was up 46% year over year. This may end up being a steady revenue stream for Zillow in the future, although at this point, it represents just a small piece of the overall company.
Zillow Offers gaining steam
Zillow's Homes section, aka its Zillow Offers iBuying program, is picking up the pace. The Homes segment saw revenue of $704 million but also saw a hefty $58 million loss.
This doesn't seem to concern Zillow CEO Rich Barton. On the company earnings call, he spoke of building a flywheel and that Zillow Offers was only going to be a giant business when the price is fair to consumers. The Zillow team sees this more as a way to scale the number of transactions quickly and then monetize some of the adjacent services around the process.
Earlier this year, Zillow announced it's testing turning Zestimates into initial offers. This is part of an overall move to automate the offer process. It bought 1,856 homes during the quarter and sold 1,965, leaving it with 1,422 homes in inventory.
The Zillow Offers gross profit per home sold was $32,644. The gross profit per home was just $16,600 at the end of the second quarter last year. The average home sold for $356,730, and the average total operating costs worked out to $337,139.
If you were an individual house flipper, you would probably not do a deal with those types of margins, but again, Zillow is counting on scale here. As Barton put it, he sees an "ocean of opportunity" when it comes to growing this part of the business. After all, at this point, iBuying still represents under 2% of the total market.
The Homes segment also includes Zillow's closing services that are used in conjunction with Zillow Offers. This is another section of Zillow's business that is still under development.
The third segment of Zillow is Mortgages. This is still an emerging business but is a key part of what Barton and team see as the overall movement toward a fully integrated online homebuying and selling experience. This segment saw $68 million in revenue, a whopping 169% gain. Its $2 million net income loss means that it may be slowly pushing its way toward profitability.
Rich Barton's vision of unlocked mobility
Every CEO has their buzzwords, and for Barton, there are two phrases that keep coming up. The first is "The Great Reshuffling." This is Barton's term for what he sees as a generational shift in real estate. He says:
Across the country, millennials are moving up, baby boomers are downsizing, and in between, people of all generations are rethinking their lives in a cultural phenomenon we have termed The Great Reshuffling. Millions come to Zillow to surf and dream, and when they are ready to transact, they can get a mortgage from Zillow Home Loans, connect to a Zillow Premier Agent, and may even find an initial offer from Zillow Offers to buy their home for their Zestimate.
The other term Barton is fond of is "Real Estate 2.0." As shown in the quote above, he sees Zillow as a complete system for real estate in a way that hasn't ever fully happened yet.
He's not alone in this vision. Many other companies, including Redfin (NASDAQ: RDFN), are chasing the same dream. Part of Barton's view is that the simpler the transaction gets, the more mobility is unlocked for many Americans. Zillow itself now has employees in all 50 states and is committed to the idea of remote work.
The Millionacres bottom line
As this current market continues to boom, Zillow fully expects to profit from multiple revenue streams connected to real estate transactions. The challenge ahead for the company is to pare back losses in the iBuying segment while attempting to gain a larger share of the overall opportunity. There are plenty of contenders coming for Zillow's crown, including Redfin and CoStar Group (NASDAQ: CSGP), but unseating Zillow's place as the real estate search leader will be a challenge.