Spencer Rascoff and Richard Barton (Credit: iStock)
New Zillow CEO Rich Barton is shooting for the moon, but the company’s latest financials might have him crashing down to earth.
On the same day that it removed Spencer Rascoff as CEO, Zillow disclosed in an earnings report that it collected a record $1.33 billion in revenue last year, a 24 percent gain over 2017. But the Seattle-based real estate tech firm also racked up a net loss of $120 million in 2018, well above the $94 million loss in 2017.
It also suffered setbacks to its primary revenue stream, the advertising program Premier Agent, and saw its stock drop more than 25 percent in value year over year.
On the earnings call, new CEO Rich Barton acknowledged that 2018 was a volatile year for the company, as Zillow shifted from a housing search website to focusing on purchasing and flipping properties.
“Zillow is a very different company from where we started the year,” Barton told investors. “We are really in the process of remaking Zillow Group right now and formulating a new mission, one where we’re looking at the sky, we’re looking at the moon and saying: we want to walk on that thing.”
True to the lofty language, the company aims to massively expand its home-buying arm Zillow Offers to 14 markets by the end of 2019, with a projected annual revenue of $20 billion within five years. Still, it disclosed that its profit margins in the fourth quarter were tiny. Zillow made an average of just $1,723 (0.5 percent) per home sold in the fourth quarter (it posted better results earlier in the year).
If Zillow Offers is the future of the company, Premier Agent is very much the present. The advertising program again accounted for the bulk of Zillow’s profits. It was responsible for about $898 million in revenue in 2018, an 18 percent uptick from the year prior. But changes to the program — which agents said reduced the number of leads — resulted in increased cancelations.
“These changes have been well-received and the churn rate has started to return to historical norms as conversion and transaction rates are growing,” the company said in its earnings statement. “However, the mid-year challenges led to a projected cumulative annual recurring revenue shortfall in Premier Agent revenue entering 2019, or an estimated 6 month sell-through gap to close.”
Zillow projects Premier Agent to bring in between $905 million and $930 million in 2019.
In his call with investors, Barton said the leadership transition from Rascoff was a smooth one.
“We’ve collectively decided it’s time to turn our leadership triangle on its side and shuffle our seats.”
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