Zillow Q2 - Small Margins on Record $1.3 Billion Revenue as Moonshot Continues Apace 

American market leader Zillow released its results for the second quarter of 2021 late yesterday afternoon. The headline figures from the company's performance over the period include:

• Record quarterly revenue of $1.3 billion driven by an increase in iBuying activity
• Record revenue ($476 million) and Adjusted EBITDA ($217 million) for the IMT section
• Record volume of homes bought through Zillow Homes iBuying offer (3,805)
• Net income of $9.6 million

As iBuying has ramped back up Zillow's quarterly revenue has increased massively. The company brought in $777 from the segment, a figure which is up 70% on the same period last year and up $73 million on Q1. The figure of 3,805 homes purchased by Zillow Homes in the quarter is significantly more than any other quarter since the company started iBuying in 2019.

Commenting on his company's iBuying activities, Zillow CEO Rich Barton said:

“Of particular note, our iBuying business, Zillow Offers, continues to accelerate as we offer more customers a fast, fair, flexible and convenient way to move. Zillow Offers is proving attractive to sellers even in this sizzling-hot seller’s market."

Elsewhere the ever-reliable IMT segment, which includes the company's flagship advertising product Premier Agent as well as all display advertising on Zillow's portal, saw continued growth with the $476 in revenue generated above the high end of company and analyst expectations.

Zillow has high long term hopes for its mortgage business with Barton in an earnings call describing the segment as a "mortgage factory that serves both purchase and refinance transactions". Although originations grew by 90% year-on-year, the heavy impact of the pandemic of Q2 of 2020 should be taken into account.

After four successive quarters of positive EBITDA, Zillow's Mortgage segment went into the red again at -5.8 million for Q2 of 2021. The performance is being framed by the company as a long term plan to marry mortgages with iBuying and develop both products to reach scale. Barton highlighted the recent launch of Zillow's new self-service mortgage prequalification offering, which automates the process and makes it more efficient for customers.

In terms of non-financial metrics, Zillow continues to see spectacular levels of traffic with 229 million monthly average unique users representing a 5% increase year on year as the American housing market continues to break records and see skyrocketing demand. There has also been a significant 14% rise in employee numbers at Zillow over the last 6 months as the company looks to capitalise on the buoyant market and round out its offering.

Overall, profits at Zillow may not have been in line with revenue at around $10 million, but analysts had in fact expected Zillow's Q2 profitability to be down due to product development and marketing costs. The company's share price was up from close of $110 to around $113 in after-hours trading.

The performance here was framed by Barton as part of the long term end-to-end goal with the revenue representing scale. The ultimate goal of a true end-to-end real estate transaction company was alluded to in the earnings call with Barton saying that the firm increasingly sees its diverse suite of products coming together:

"Instead of optimizing for gross profit dollars generated by one particular service, we are increasingly finding ourselves thinking about the total enterprise gross profit pool that is produced when we offer multiple services to our customers."

Interestingly, earlier in the week it was reported that Zillow was raising $450 million to scale its product through mortgage bonds backed by collateral from the company’s iBuying business. This is by all accounts an industry first and may well see Zillow step up the pace even further in the iBuying segment.

Although Zillow may not be seeing the same outlandish numbers as some of the large US brokerage firms (Redfin's Q2 revenue was up 121% while exp Realty's was up 183% with the company even paying out a dividend) or some of its portal contemporaries (REA Group EBITDA was up 19% and Rightmove's half-yearly revenue was up 58% and operating profit was up 86%), it does seem that the company is maintaining focus on its moonshot vision.