Zillow started as a real estate listing marketplace in the USA, much like Rightmove in the UK, but quickly morphed into what is termed an iBuyer. Think of webuyanycar.com, but for houses.
Using “very sophisticated data and analytics models”, they created a tool called Zestimate, which worked out what price to pay you today for your property, before they refurbish it and sell it on, hopefully at a profit.
They were one of the darlings of the US Proptech world having raised millions and millions of dollars in equity, then becoming a listing on the US stock market as a tech company. Back in Feb 2021 their share price peaked at $203 per share, today it has fallen back to c$70 a share, which still leaves them with a very healthy but potentially unrealistic valuation of $20 billion.
Earlier this week, the CEO Rich Barton went on record stating that “fundamentally, we have been unable to predict future pricing of homes to a level of accuracy that makes this a safe business to be in” and in reference to black swan events and volatility in and unpredictability to the overall market, he followed up with “we pump them into the model, and the model cranks out a business that has a high likelihood at some point of putting the whole company at risk”.
WOW!!!
The outcome of which is Zillow is writing down $569M on the remaining assets they have already purchased (overpriced) and $422M on the loss for the quarter.
They will also lay off 2,000 employees or 25% of their workforce. They took a 10% hit to shareholder value over the news, which in layman’s terms means the CEO would rather write down $991M, layoff 2,000 people, AND take a 10% hit on shareholder value over continuing with their business because the outlook of continuing as is, puts the whole $20 billion company at risk?
This is what happens when you try and “out tech” property underwriting whether its physically purchasing property (equity) or lending against property (debt).
If you have a spare 15 minutes, watch this presentation from Mike DelPrete, who sums it up perfectly calling on the famous words of Richard Branson.
If you want to build a million dollar airline business, start with a billion dollars.
