Zillow – Zillow’s Weak Spot
Online real estate marketplace
Zillow owes its success to three factors. First, the recovery in the real estate sector, which has boosted demand for real estate services. Existing home sales stand at 4 million — and new home sales at 0.38 million, still below the pre-crash level.
Second, the bundling of a variety of real estate and financial services, from home-buying and selling guides to home listings, home design, and financing. This makes Zillow.com a one-stop center for prospective homebuyers.
Third, economies of networking. There are benefits associated with a larger and larger number of consumers buying and using a certain product and using it. It makes the product more valuable the product to each user—as is the case with
But Zillow has a weak spot: listing agencies have the upper hand.
“Zillow not only offers property listings without charge but also prominently names the agent marketing the property,” writes Benjamin Edelman in “Mastering The Intermediaries,” published in the June 14, 2014 Harvard Business Review. “And any agent who joins can receive messages directly from interested viewers. One can imagine Zillow’s charging hundreds of dollars per listing for these services (and some agents might be willing to pay). But given the platform’s need for completeness, the agents have the upper hand.”
That could explain the company’s negative operating margins.
That’s why I would stay away from the stock, especially at these price levels—Zillow’s stock trades at a forward PE of 142 and a price to Sales ratio of 20.54!