Zillow's competitive strengths, weaknesses, opportunities and threats

SWOT Analysis: Zillow

Zillow SWOT Analysis

Zillow (NASDAQ: Z) has successfully transitioned their business model from being a real estate search engine to becoming a comprehensive real estate information marketplace. Zillow today has its website Zillow.com, in addition to Zillow Mobile, a suite of mobile real estate applications and Zillow Mortgage Marketplace. The company was incorporated in December, 2004 in Washington, and has as its mission " to build the most trusted and vibrant home-related marketplace to empower consumers with information and tools to make smart decisions about homes" (Zillow Investor Relations, 2012). Zillow has quickly established itself as the market standard for real estate market search engines and is a growing force in the area of mortgage advice and management (Lantz, 2012). In the 3rd Quarter, 2012, Zillow reported recorded financial results, generating $31.9M in revenue, up 67% from the 3rd quarter of 2011. Quarterly Net Income was $2.3M and Earnings Before Interest and Taxes (EBITDA) was $7.6M, representing 24% of revenue (Zillow Investor Relations, 2012). Zillow continues to experience record usage across their mobile and Web applications as well, reaching 1 billion home views on Zillow Mobile year-to-date (Zillow Investor Relations, 2012). The intent of this analysis is to evaluate their strengths, weaknesses, opportunities and threats given the increasing level of competition they are facing in key markets. With a solid base of customers and continually improving services, Zillow shows significant growth potential for the years ahead. They however also face significant threats from Amazon as well.

Strengths

Financial strength and long-term viability are two of the companies;' greatest strengths, as evidenced by the last fiscal quarter's results (Zillow Investor Relations, 2012). Zillow continues to evolve into an advertising, mortgage brokerage and referral business model, balancing all three business models to optimize revenues and keep costs low (Lantz, 2012). The combining of these three business models and the continual development of products and services in each is propelling the company to record revenue and profit levels (Zillow Investor Relations, 2012).

A second significant strength is the ability of the three business models and their services to significantly increase website and services traffic. The average monthly unique visitors on mobile and Web grew by 11.9M year-over-year to 36.1M in the 3rd quasrter of 2012 (Zillow Investor Relations, 2012). July, 2012 was a record month for the company as well, with 37 million visitors to all sites and services.

The third significant strength is the unique market valuation algorithm that Zillow has created and continues to refine over time. The approach to market valuation fo homes can now be done automatically for entire zip codes and regions in real-time through the use of advanced programming and integration to database systems (Haseeb, 2012). This strength is also setting the foundation for future analytics and data mining products and services that can scale across mortgage companies and large-sale real estate investment trusts who are interested in tracking inflated vs. deflated market prices (Schintler, Istrate, 2011). These advanced analytics and data mining applications continue to improve the quality of information and allow for greater levels of insight into market dynamics as well.

Finally, Zillow has proven to be adept at managing the many opportunities for acquisition early in its life as a business. The acquisition of Buyfolio is a case in point (Zillow Investor Relations, 2012). Buyfolio extends the value of analytics and data on Zillow, as this software platform can track, organize and discuss for-sale listings with agents and private groups of potential purchasers as well. Buyfolio will become part of the Premier Agent Program Zillow sells as a service (Zillow Investor Relations, 2012).

Opportunities

The potential for growth of the service on mobile platforms is exceptional, with the company recording 23.5 million average monthly unique website users who accessed at least one property online (Zillow Investor Relations, 2012). This equated into a year-over-year growth of 86% (Zillow Investor Relations, 2012). Mobile traffic continues to accelerate as does Web-based complex queries from the Premier Agent services (Zillow Investor Relations, 2012).

A second major opportunity is the potential to create advanced partnerships with realtors and create special-label versions of the website content and algorithm as well. This opportunity would broaden the Zillow brand and make it even more recognizable across the industry.

Third, the company only occasionally does surveys and research, and is continually improving the level of data analysis they can produce. Another opportunity is to take these surveys and create a specific series of research services and studies that can be used for by realtors and investment groups to better understand markets of interest (Schintler, Istrate, 2011). The data mining and analysis of the data they have is rich with insight and value, and there is ample opportunity to sell it in the form of reports and customized analysis.

Threats

The most significant threat is Amazon or Google entering their market and forcing a premature consolidation of the house listing and mortgage market. Amazon especially has the backoffice systems in place to manage this task, and could easily create a formidable competitor in this market.

Another significant threat is the consolidation of the housing market itself, which would lead to the services Zillow sells today appearing even more expensive than potential prospects perceive them to be (Zillow Investor Relations, 2012). A recession would slow down the adoption of their service and make attainment of their goals even more difficult.

A third threat is fact that larger realtors have looked into how best to create their own Zillow-like clone at much lower prices (Zillow Investor Relations, 2012). Realtors throughout the U.S. see the potential to create a public trading exchange of their information and much lower costs that Zillow charges today while also increasing the speed of transactions. To date the major realtors have not been able to make this happen technologically, yet it is an area that continues to gain interest with realty companies unwilling to pay fro premium services from Zillow.