Zillow released its Q1 2019 earnings report at the end of last week.

Pay particular attention to how Zillow Offers, Zillow’s home flipping business, impacted its overall business.

Very special thanks to Wolf Richter of the Wolf Street Report for the below data and for Mr. Richter’s insights.

Zillow Offers sold 414 homes during the first quarter of 2019 in eight markets:

  • sales revenue from those 414 homes = $128.5M
  • cost of sales for those 414 homes = $122.4M
    • average purchase price of home = $295,700
    • sales and marketing costs @ 414 homes = $20.8M
    • tech & development services @ 414 homes = $12.3M
    • general & administrative services @ 414 homes = $14.4M
    • segment interest expenses @ 414 homes = $3.8M
  • expenses on single home
    • average purchase price = $295,700/house
    • average selling price = $310,400/house
    • gross profit = $14,700/house or 4.9%/flip
      • average net profit/loss = $109,190/flip or 37%/flip
    • bottom line for 414 homes
      • revenues of $128.5M
      • expenses of $173.7M
      • overall LOSS of $45.2M

Looking at the entire company along with Zillow Offers, the sales of 414 flipped homes added $128.5M. This is an increase of $154M (51%) of its $454M total revenues in Q1 2019.

Zillow’s’ total losses jumped by an eye-popping 263% or $67.5M in Q1 2019. These losses are a “stunning” 15% of the company’s revenues.

As a business, Zillow has never turned a profit but, do profits matter to publicly traded companies? Zillow has been one such publicly traded company since 2011 and its stock has jumped a whopping +19%…again, without turning a profit.

According to Wolf Richter, author of the Wolf Street Report, Zillow Offers is a “ruinous home flipping operation” and may become even more ruinous as it expands its current 8-market net to more markets in 2019.

Check out Richter’s recent post in wolfstreet.com for a more detailed look at Zillow Offers and for his perspective on the state of both Zillow the company and the stock market.

Richter’s parting words, “When the stock market rewards companies that have always lost money, Such as Zillow, for coming up with a way of losing even more money, it takes the incentive away from management to build a functional, profitable business model.

 

https://wolfstreet.com/2019/05/10/house-flipper-zillow-lost-109k-35-per-flip-net-loss-triples-shares-soar/