I took a big bite out of Zillow for the next decade

“It now makes up 15% of my holdings. Does anyone else have any insight on them?”

Just my opinion; I tend to keep things at a max of 10% of the portfolio, because I think once you get well beyond that you start to get more reliant. If something gets up to that 10% level or about there, it’s something that I have a lot of confidence in – Livongo was an example of that before it was bought recently.

” I’m not entirely sure Zillow 2.0 will work” ” Does anyone else have any insight on them?”

If you’re uncertain as to whether or not 2.0 will work and asking on here what people think, then I think it shouldn’t be 15% of your portfolio at this point. What Rich Barton did on the board of Netflix should not really play into whether or not this business is successful.

The issue I have with Zillow (and Redfin…and now Opendoor) is that I think the home flipping business is not a good business. There is a fantastic line in the Q219 Redfin conference call where CEO Glen Kellman said: “So we are quite committed to this business, but anyone in this business should be scared. And if they aren’t scared, you should be scared because we are taking significant capital risk and most of the folks in the space are losing tons of money and you have to have a clear path to profit.”

And I think that’s a highly realistic view of the business. The end goal of these businesses I think is certainly not to flip houses (which they continue to lose money on), the end goal of the business is to have the house flipping business as a way to basically own the entire process more and more over time and have you go through Zillow (or whoever) for all of the aspects of the mortgage process, including the parts that are lucrative.

Rich Barton has a very impressive track record but I think the issue that I have with his selling of this digitization of real estate theme is that the potential end goal is very lucrative but there’s major potential risk and I think he sells the potential but not the high risk. If you’re Zillow you’ve gone from being an asset light company to now owning tons of houses scattered across the country. What happens when there’s a significant downturn?

There’s been plenty of debate over whether or not this business model could even be successful, but even if it is it’s going to be a very volatile business over time with a lot of risk.

I own a small amount of Redfin.

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