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(Photos via Bigstock, Redfin)
Zillow Group and Redfin are long-time competitors. So when the Seattle-based real estate technology giants announced a key partnership earlier this month, it got us thinking: could the companies join forces in a bigger way in the future?
Zillow is paying Redfin $100 million upfront as part of a new licensing deal that makes Zillow the exclusive provider of multifamily rental listings on Redfin and its subsidiaries, Rent.com and ApartmentGuide.com.
The partnership helps Zillow invest deeper into its rentals business, which it estimates could be a billion-dollar or more revenue opportunity.
Redfin, which is laying off 450 employees as part of the deal, will get additional revenue from leads generated via its network of sites.
“We’re very excited about the partnership with Redfin,” Zillow CEO Jeremy Wacksman said on the company’s Feb. 11 earnings call. “We’re very similar mission companies. We’re trying to digitize the industry and turn on the lights. This agreement is really a great win-win.”
While both companies provide property listings online and focus on using digital tools to drive revenue — each has their own home estimate algorithm — they operate distinct business models.
Zillow operates a comprehensive real estate marketplace platform and connects users with third-party agents, while Redfin employs agents and makes most of its money via a brokerage model. They both offer mortgage products.
A potential acquisition is “possible,” said Tom White, a senior equity research analyst with D.A. Davidson. White said it would help Zillow consolidate its share of user engagement among the leading residential real estate portals, including CoStar, which is spending big to promote Homes.com.
Redfin could also help bring additional agent productivity technology to Zillow, he said, particularly as Zillow expands its “enhanced markets” strategy. Zillow has acquired a number of technology tools over the past several years, including a $500 million deal for ShowingTime and a deal worth up to $500 million for Follow Up Boss.
A software-related angle would increase the chances of a deal happening, said Jay McCanless, senior vice president of equity research at Wedbush.
“I don’t think Zillow necessarily needs to buy more market share in traditional real estate,” McCanless said. He added: “Zillow is looking at software and rentals as two growth areas right now.”
Both Redfin and Zillow tried their hand at flipping houses via “iBuying,” but each shut down their respective efforts — Zillow Offers and Redfin Now — in recent years.
The two companies previously partnered on a separate syndication deal, as well as sharing 3D home tours and interactive floor plans.
Zillow’s cash and investments at the end of Q4 last year was $1.9 billion. The company, which employed 6,856 people as of Dec. 31, has a market capitalization of around $17.7 billion.
Redfin, which employs more than 4,000 people, is valued at around $980 million. Redfin stock is down more than 30% in the past six months while shares of Zillow have risen 30% over the same period.
