Brokers, REBNY, Zillow/StreetEasy At Odds In 2024

[David Goldsmith]

Mike DelPrete
to me
2 days ago
Details

​ Zillow’s Transition to “Super App” Driving Revenue Growth​ Zillow’s latest momentum is a manifestation of its strategy to diversify revenue across the transaction as it transitions from a lead gen platform to a housing “super app.” Why it matters: As Zillow scales new revenue streams, including Zillow Home Loans, Rentals, ShowingTime+, and Seller Solutions, it is planting important seeds for its next phase of growth. Context: After a pandemic bump, Zillow’s overall revenue declined and has remained flat since 2021 – during one of the worst real estate markets ever recorded. Over a challenging two years, Zillow’s residential and mortgage businesses have shrunk (on par with the declining market), while its rentals business has ticked up from strong organic growth. Even with flat revenue, Zillow has significantly outperformed the market during this period, with the magnitude dependent on whether you consider Zillow a lead generation platform or a housing “super app.” While revenue growth at Zillow, the lead generation platform, has slightly outperformed the market, revenue growth at Zillow, the housing super app, is outperforming at a much higher rate. This is a result of new products and services that are generating additional revenue across more of the transaction. Dig deeper: For years I’ve used the following framework to think about real estate portal growth strategy. Zillow’s evolving strategy sees it getting closer to the real estate transaction (Zillow Flex and Zillow Home Loans) and expanding to more parts of the transaction (Mortgages, Rentals, Seller Services, Agent Tools). Typically, services closer to the transaction are higher revenue, while services further from the transaction are higher margin and more scalable. Zillow asserts that its strategyto grow transaction and revenue share is working. The drivers of that growth – in its early enhanced markets – appear to be a combination of growing Zillow Home Loans, cycling out underperforming Flex teams, and launching new seller solutions (Listing Showcase and the Opendoor partnership). Zillow’s mortgage business is growing, but, counter-intuitively, revenue is droppingas purchase volume nearly doubles. This is a result of a shifting product mix – Zillow is funneling leads from its mortgage marketplace to fulfillment by Zillow Home Loans. It’s shifting from an asset-light marketplace to an asset-heavier mortgage brokerage operation, with much higher revenue potential. Last year I claimed that Listing Showcase was Zillow’s most interesting product, and now it’s probably Zillow’s most interesting slide in its investor presentation. The mid-term revenue potential is spot on based on my earlier calculations, representing a significant revenue opportunity as a new, sell side product. But the most interesting opportunity is long-term, where Listing Showcase could be rolled out as a mass market product for all agents. What to watch: Zillow’s future growth aspirations hinge on a few key factors. Expansion into 40 markets – as early “enhanced markets,” Atlanta and Phoenix are useful data points, but not necessarily representative of all 40 markets. The last mile problem – Zillow remains completely dependent on local real estate agent teams to drive adoption of its new products. Zillow Home Loans is driving revenue, but it’s unprofitable, lower-quality revenue – the business needs to demonstrate an ability to grow revenue faster than expenses. The bottom line: Zillow is diversifying its revenue along the transaction – what it calls its super app – and is outperforming a depressed market. Zillow will almost certainly miss its $5 billion in revenue by 2025 goal, but like many plans that were laid in early 2022, things have changed. While early signs are promising in a few key markets, the path forward hinges on the stubborn realities of conversion rates, profitability, and – as always – partnering with agents. ​

 

[David Goldsmith]

Mike DelPrete
to me
1 day ago
Details

​ Learning From A New Generation of Brokerages​ Behind the hype of year-end press releases and the incomprehensible density of financial metrics, clarity is emerging on the shifting brokerage landscape. Why it matters: The industry is changing – a new generation of brokerage businesses is rising, attracting more agents and operating more efficiently than their legacy peers. Context: Overall transactions were down 19 percent in 2023 compared to the previous year – a significant market slowdown. eXp Realty, Compass, and Keller Williams outperformed the market, with smaller transaction declines, while the big legacy firms HomeServices of America (HSoA) and Anywhere were on par with the overall market. The notable outliers are Redfin, which underperformed the market by a wider margin, and the Real Brokerage, which grew its transaction volumes a whopping 78 percent. Transaction volumesover the past seven years paint a fascinating picture of disruption. During that time we’ve seen the exponential growth of eXp Realty and Compass, moving from effectively zero to top spots in transaction and sales volume. At the same time, the two incumbent leaders (Anywhere and HSoA) went from total dominance to being usurped by these two disruptive start-ups. Agent migratory patternscontinued at pace with agents streaming out of the big legacy brands for lower-fee models (and Compass). In the current downturn, the lure of the low-fee brokerage is simple: agents can keep more of their commission. Which comes at the expense of the large, legacy brands including RE/MAX, HomeServices of America, Anywhere, and Keller Williams, who collectively lost over 19,000 agents in 2023. Here’s another way to look at the same data that helps show perspective relative to each firm's size. Zooming in to agent movementbetween Keller Williams, RE/MAX and eXp Realty highlights this continuing flow of agents. According to 3rd party data from hundreds (but not all) MLSs, 1,627 agents moved from eXp to KW during 2023, while 3,099 agents moved in the opposite direction -- for a net gain of 1,472 agents in eXp's favor. Similarly, 388 agents moved from eXp to RE/MAX during the year, while 897 moved in the opposite direction – for a net gain of 509 agents in eXp’s favor. Alongside the shiftsin transaction and agent count, there is an underlying shift in brokerage business model efficiency. Keeping in mind that eXp is the largest brokerage based on transaction volume, its operating expenses (OpEx) per transaction is one-fifth its brokerage peers. Even Redfin, which has exemplified an efficient, tech-driven brokerage model, has a cost structure closer to an incumbent than a disruptor. M For example, although Keller Williams lost the most agents in 2023, it still outperformed the market -- so context is key. The bottom line: In a recent Inman presentation, I unpacked what a Netflix vs. Blockbuster momentin real estate would look like, and how a receding tide reveals business model resiliency and clues about future growth. The key message here is less about winners and losers, and more about learning. It’s a transformative time in the industry, and now is an opportunity to pause, step back, critically evaluate, and use the moment to get smarter – what can you learn? ​

 

[David Goldsmith]