Zillow’s home-buying business produced $1.37B in revenue last year but is still unprofitable

(Zillow Photo)

Almost exactly a year ago, Zillow Group embarked on a fundamental re-imagination of the company shifting from real estate media and advertising to buying and selling homes directly. And so far, “Zillow 2.0” is juicing the company’s revenues in a big way.

RELATED: Zillow Group beats estimates with $943.9M in Q4 revenue to cap a ‘tumultuously remarkable’ 2019

Powered by its home sales division, Zillow reported revenue of $943.9 million in the fourth quarter, up a whopping 158 percent year-over-year and well ahead of the $810 million expected by analysts. Zillow’s home-buying segment brought in more revenue on its own last year — $1.37 billion — than the entire company generated in 2018.

However, the company is still figuring out how to turn a profit on the thousands of homes bought and sold each quarter. In the fourth quarter alone, Zillow sold 1,902 homes and purchased 1,787 homes, ending the quarter with 2,707 homes in inventory.

The average sale price of those homes was $317,155. But between buying the home, fixing it up, the cost of holding onto it and selling costs, Zillow spent an average $318,667 on each transaction. Add in interest expenses, and Zillow posted an average loss of about $6,400 per home sold in the fourth quarter.

In each of the four quarters since Zillow embarked on its business shift, the company has lost money on the average home sale, based on a GeekWire analysis. In the first and second quarters of 2019, the return came out positive but interest costs pushed the average transaction into the red.

(Zillow Chart)

On a call with analysts, Zillow CEO Rich Barton noted that home sales are within “unit economic guardrails” that the company laid out, and he expects that trend to continue moving forward into the next quarter.

With every home sale, Barton said, Zillow gets a little more data and experience. Zillow is learning on the go about the complex world of buying and selling homes — offering the right amount, pricing homes appropriately and knowing when to drop prices — and there will be some kinks to work out.

“Looking forward, because we still are in the early days, most of our markets are really young, we expect it will be a lumpy path,” Barton said about home sales. “It won’t be a nice clean, linear thing, which is one of the reasons we’re only guiding one quarter out.”

Investors are buying into the new Zillow. Shares are up more than 50 percent since the Zillow 2.0 announcement last year, reaching an all-time high of $65.72 this morning. About half of the stock spike accumulated over the last year has come in less than 24 hours since Zillow reported its quarterly financials.

RBC Capital Markets raised its target on Zillow stock to $67, up from $47, where the stock sat roughly three weeks ago.

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