India 2.8b 4bchaudharybloomberg: Zillow, the online real estate marketplace, has apparently reached out to investors in an effort to raise money for the acquisition of new properties. The company is selling about 7K homes in San Diego and Phoenix for $2.8 billion.
This could be a sign that Zillow is struggling financially or that it’s looking out for opportunities to diversify its stock with more commercial or multifamily properties. In the private markets, there’s a growing belief that Zillow may have suffered from over-expansion in the real estate industry, which made it vulnerable to a downturn.
Zillow has always been an aggressive expander of its business model as a means of diversifying its revenue base and reducing financial risk. This can be seen in the company’s rapid expansion outside of just real estate. In February 2012, it acquired Motive Media, which provides paid search marketing for a variety of websites. The company also acquired RE/MAX, detailing real estate listings and information.
In 2013, Zillow purchased Move, which provides home staging services and mobile phone apps to help people sell houses and rent out their properties. It was probably the best use of resources for Zillow to buy Move as a means of improving its image as a real estate reference site and gaining some credibility in the process. In 2017 it acquired Nest Seekers, which helps busy professionals find houses for sale.
Zillow has also made efforts at expanding its footprint by offering more on-demand services. In 2015, the company began offering a mortgage service and partnered with LendingTree. Then it rolled out a car buying service, which allows users to purchase cars from dealers directly from the Zillow website. It also acquired Dotloop in 2017, which provides real estate records and documents. This year it bought Porch to provide home improvement services.
Zillow is one of the most diversified companies in the real estate business. It earns revenue through advertising, paid search results, mortgage services, home staging and other products and services. The company’s business model is similar to Google’s, which makes it highly appealing to investors. However, unlike Google, Zillow is also highly capital intensive.
As a result, the company has regularly turned to issuing debt and equity in order to sustain its $3 billion annual revenue run-rate. In 2015 and 2016, it cashed out IPO shares to the tune of $824 million. Then in 2017 it issued $450 million in debt, which was followed by a $1.5 billion secondary offering in June 2018. The company has also been criticized for its use of stock buybacks, which is an indicator that it’s using excess cash to prop up its share price instead of growing its businesses through reinvestment.