Despite big year-over-year drops in revenue, Zillow stock climbed Thursday after its Q1 earnings showed the real estate behemoth outperformed a slow market—and may have been further boosted by an announcement earlier this week that the company has built a plugin for AI chatbot ChatGPT and is moving forward with its long-planned “super app.”
In a conference call following the earnings announcement Thursday, CEO Rich Barton said the company has rolled out a “seamless, connected” app experience to four test markets, and expects to double the company’s share of real estate transactions by 2025.
“We’ve been laying the groundwork for our transaction strategy for quite some time and believe this is how we both differentiate and continue to grow our business and our brand,” Barton said, “by being the destination for buyers’, sellers’ and renters’ end-to-end housing transaction needs.”
The ChatGPT plugin remains in alpha, with the company warning that “the experience may not work exactly as expected right now.” But a so-called super app, long an aspiration of companies in real estate (and other industries), is seemingly still a huge focus in both the short and long term for Zillow, with an eye on integrating all aspects of real estate under one roof.
“We think over the next 10 years, there are going to be 60 million home transactions,” said Barton. “And our eyes are focused on that. We’re investing for that, and we want to have a meaningful and increasing percentage of those transactions happen in our sphere so that we can monetize it and we can deliver value by the Super App.”
Superficially, the numbers were down last quarter, at least compared to Q1 2022. Revenue was off 13% at $469 million, with residential decreasing by 14% and the mortgage segment down 43%. Revenue from the company’s Premier Agent program dropped 16% year-over-year.
But all of these losses were expected, with the company previously projecting overall revenue at $404 million to $437 million, anticipating a 23% to 28% drop in Premier Agent revenue due to a sluggish winter housing market.
“Residential revenue also outperformed the tough housing industry, and we expect that trend to continue into Q2,” said Zillow CFO Allen Parker. “The relative outperformance was driven by a combination of the strength of our brand, a better-than-expected number of customer connections provided to our Premier Agent partners…and favorable tailwinds relative to the industry that we’ve discussed before.”
The company also expects “a modest increase” in expenses in Q2 due to hiring, including loan officers, according to Parker.
Zillow, which was founded as a consumer portal but now has segments dealing with everything from mortgage to showings, still makes most of its revenue through ads and selling leads. Barton has previously outlined that the company plans to expand and monetize its footprint throughout the real estate transaction, focused on five pillars: touring, financing, “seller solutions,” integration and growing partner networks. He highlighted a few other key areas where the company is making progress, including a “big bet” on 3D interactive floor plans and real-time touring.
“So when we talk about touring, we’re talking about the point-of-sale moment when dreamers turn into customers,” Barton said. “This means capturing the attention of the users who are currently dreaming and scrolling at the top of the funnel and providing them with a tangible step into the real life home shopping experience of touring a home.”
Early data has shown that these tours increase the likelihood of Premier Agent connections, according to Barton.
All of this is meant to end up in the Super App, Barton described. The timeline for fully building it remains somewhat nebulous—financing and loans, for instance, remain a small part of Zillow business, with COO Jeremy Wacksman calling integration of that segment in an “early stage.” Mortgages through Zillow overall remain at “low levels,” according to Barton.
Despite these big, long-term aspirations and beating expectations this quarter, Barton remained cautious about the near-term real estate market, saying there was “no clear indication” the downturn was over.
“We continue to live in a very challenging housing macro environment,” he pointed out. “Transactions continue to be low. High demand to move supports a stable pricing environment, but high rates have somewhat locked sellers into their existing low rate mortgages…it will take quite some time to balance demand with supply and to normalize the market.”