Personal Finance

Here's Zillow’s Growth Blueprint for 2017

Zillow homepage.

Zillow Group Inc. (NASDAQ: Z) (NASDAQ: ZG) has a strategic plan for 2017 that calls for the company to focus on four key aspects of its business. Management explained to investors in its most recent earnings call that to be successful long-term, the company will continue to spend money on what management believes is important at the expense of short-term profits.

Here is what CEO Spencer Rascoff had to say.

Our 2017 priorities are: one, grow our audience size and consumer engagement; two, grow our Premier Agent advertising business; three, grow our emerging marketplaces; and four, maintain our extraordinary company culture, which attracts and retains incredible people, and motivates them to do their best work.
Zillow homepage.

Image source: Zillow.

It's about users and engagement

A common refrain from the company is that advertisers follow audience. Zillow Group wants to increase the size of that audience, as well as the audience's engagement with the various websites that comprise Zillow's different real estate brands .

It is interesting to note that this quarter the company did not provide any guidance around its comScore metrics as they relate to the percentage of traffic around the total web-based real estate and the mobile subcategory, which it has consistently provided for the past several quarters. The company did state that it saw 140 million average monthly unique users for the quarter, an increase of 13% over the fourth quarter of last year.

Metrics Q4 2016 Q3 2016 Q2 2016 Q1 2016 Q4 2015
Average monthly unique users 140 million 164 million 168 million 156 million 124 million
Online real estate market share not provided Nearly 66% 67% 63% 60%
Mobile-only market share not provided Nearly 75% 78% 72% 70%

Data source: Zillow. Chart by author.

When management neglects to update shareholders on a consistent quarterly basis about metrics such as comScore market share, which the company had previously touted as an example of its industry dominance, one can only assume that this quarter's results were not considered noteworthy.

The company provides the following methods that Zillow will employ to grow its audience and increase user engagement:

  • Enhance existing products and develop new offerings.
  • Enhance database of homes and create new consumer tools.
  • Launch more applications to extend Zillow's brand across additional mobile platforms.
  • Create new opportunities for consumers to reach real estate, rental, and mortgage professionals.
  • Increase brand awareness through targeted advertising programs, public relations, and social media.

Grow Premier Agent advertising revenue

Zillow's Premier Agent revenue accounted for 71% of the company's total revenue in 2016. The company has a plan to increase that number in a variety of ways:

  • Increase audience size and engagement to bring in more agents.
  • Entice agents to spend more with Zillow on advertising by enhancing analytics to show them the returns on their advertising investments and allow them to self-service their advertising needs by giving them tools to advertise on Zillow's various sites by placing ad buys online.
  • Fine tune the dynamic self-serve pricing model for each zip code. Allow agents to set prices based on the value of leads from different geographical locations. The rollout of auction-based pricing was completed in Q4, and now the company will refine the model as it sees how it works throughout all zip codes in 2017. This is an area that investors will want to keep an eye on, as allowing agents to compete for advertising share by zip code could dramatically increase the company's profit margin.
  • Create new products to help agents build their personal brands within the local markets they serve. Tools will allow agents to introduce themselves to potential clients and build touch points to help an agent gain share of mind in their home marketplace.

Grow emerging marketplaces

Aside from real estate agents, Zillow is focused on creating opportunities for professionals in areas such as mortgages, rentals, and new construction to find new clients. In addition, Zillow has carved out New York City as a geographic area to allow agents to focus on, with the StreetEasy, Naked Apartments, HotPads, and recently acquired Hamptons Real Estate Online specific brand sites.

Revenue 2016 Growth (YOY)
Mortgage 61%
Rental 124%
SteetEasy Naked Apartments NYC rentals 80%

Zillow launched several new features to appeal to new construction companies by allowing them to advertise real-time lot availability and receive valuable insights about consumers in their area through Zillow's Group Builder Insights platform. This market has a $1 billion advertising TAM, and gives Zillow access to a completely new group of advertisers that want access to Zillow's audience.

Double down on company culture

Zillow's workplace culture has earned the company accolades over the past year, culminating in being chosen as one of Glassdoor's 2017 Best Places to Work in the U.S. for the fourth year in a row and being listed as number four on Fortune's Best Workplaces to Work in technology for 2016.

This is extremely important, as the company's locations are in areas of high competition for technology employees, meaning Zillow must have an image that attracts workers for its fast-paced, high growth environment.

Foolish conclusions

Zillow appears to be at the top of its game. The company posted revenue growth of 31% for 2016, and is approaching a long runway of opportunity for the future as management estimates it is enabling only about 5% of total residential real estate commissions earned in the United States.

The company is showing its investors a game plan that will keep it on course for 2017 by digging deeper into its core market of the Premier Agent program and accelerating growth in areas around mortgages, rentals, and recently added new construction. Its special emphasis on New York real estate gives the company access to the most expensive real estate market in the country.

Keep a spot for this company in your portfolio, as there are no signs that it is slowing down anytime soon as it closes in on its first $1 billion year in 2017.

10 stocks we like better than Zillow Group (A shares)

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Zillow Group (A shares) wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 6, 2017

Frank DiPietro owns shares of Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool owns shares of and recommends Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Personal Finance Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More