Data Sheet—Zillow’s Audacious House Flipping Plan Scares Wall Street

Experiments are fun and interesting. The real estate advertising company Zillow should know. It’s running a real-time experiment with its business that can be characterized as anything from courageous (its management’s position) to reckless (the reaction of its shareholders.)

Looking merely at the numbers, Zillow reported a fine quarter Monday. The Seattle company doesn’t make money. But it does grow quickly on top of a billion-dollar-plus annual-revenue clip. It is worth more than $10 billion and is the winner of its category, having absorbed competitor Trulia and outlasted others.

Yet Zillow isn’t satisfied. It is starting a new home-flipping business using its own balance sheet to buy, touch up, and sell homes. Wall Street hates the idea, wondering why a perfectly respectable online business would wade into the messy and highly variable world of investing real money in actual houses.

Zillow management is undeterred. “We are taking our biggest swings yet,” CEO Spencer Rascoff wrote in prepared remarks for Zillow’s earnings call with analysts. Zillow’s hoped-for profit from its “Instant Offers” business is shockingly small. Rascoff sees Zillow making $3,500 on a $250,000 home, a puny 1.4% profit. But it’s a huge market. He says 5% of the volume would be 275,000 transactions, or a “nearly $1 billion profit opportunity annually.”

RBC analyst Mark Mahaney calls the audacious plan the “father of all total addressable markets” but nevertheless cites high execution risk in downgrading Zillow’s stock.

Big bets are so much more interesting than playing it safe. Especially when someone else’s money is involved.


Sidetracking the side projects. Qualcomm is ending its effort to compete with Intel in the market for server CPUs, Bloomberg reports. The unit, which relied on designs from ARM Holdings not the classic X86 architecture used by Intel, could be shut down or sold. The company, which is cutting $1 billion of costs after fending off an unwanted merger with Broadcom, declined to comment.

The list grows longer. Big data analysis startup ThoughtSpot raised $145 million at a valuation over $1 billion, putting the company in the "unicorn" category, CEO Ajeet Singh tells Fortune. An IPO of the currently unprofitable subscription software firm is likely in a few years. “This should hopefully be our last private round,” Singh says.

Mainstreaming. The parent company of the New York Stock Exchange, Intercontinental Exchange, is creating an online trading platform for bitcoin, though the project could still be abandoned, the New York Times reported. Don't tell Warren Buffett.

Is that what that means. The major record labels are dumping their holdings of Spotify now that the music streaming service is public. After Sony sold about half of its stake for $750 million last week, Warner Music Group on Monday said it sold 75% of its shares for about $400 million. “We’re a music company and not, by our nature, long-term holders of publicly traded equity," CEO Steve Cooper explained on a call with analysts. "This sale has nothing to do with our view of Spotify’s future." Spotify's stock price dropped 3% on the news.

Irresponsible. The software with the security flaw that allowed hackers to penetrate Equifax is still being widely used, security firm Sonatype says. More than 10,000 organizations, including more than half of the Fortune Global 100, have downloaded an unpatched version of the open source network software known as Apache Struts even though more secure, updated versions are available.

Moscone, bail bonds, this is Eddie. Following its ban on payday loan ads, Google said it will ban online ads for bail bonds service starting in July. Research found that many of the advertisers went after low income customers with "opaque financing offers" that kept them in debt for months or years, Google said.

Wet storage. Researchers at Stanford have developed a new form of low-cost battery based on water that could store solar or wind generated energy. The technology is based on an exchange of electrons between water and manganese sulfate, an industrial salt used in fertilizers, paper, and other products. “Other rechargeable battery technologies are easily more than five times of that cost over the life time,” professor Yi Cui, one of the inventors, says.


Netflix raised its price, the price of Amazon Prime is going up, and Bloomberg just installed a paywall on its web site. The cost of consuming online media is on the rise. At TechCrunch, Danny Crichton examines the trend and what it means for consumers who increasingly want to "cut the cord" to traditional media and traditional media platforms like cable TV service. He's got some ideas:

One way we could fix that situation would be to allow subscriptions to combine together more cheaply. We are starting to see this too: Spotify, Hulu, and Scribd appear to be investigating a deal in which consumers can get a joint subscription from these services for a lower rate. Setapp is a set of more than one hundred OS X apps that come bundled for about $10 a month.

I’d love to see more of these partnerships, because they are much more fair to the consumer and ultimately allow smaller subscription companies to compete with the likes of Google, Amazon, Apple, and others. Cross-marketing lowers subscriber acquisition costs, and those savings should ultimately stream down to the consumer.


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The spring show at the Costume Institute of the Metropolitan Museum of Art, better known as the Met Gala, kicked off this week without pop star Taylor Swift, a regular attendee at past events. E! News has the scoop on Taylor's lower-profile publicity strategy that emphasized less is more. Of course, with a 51-show tour starting at the University of Phoenix Stadium in Glendale, Ariz. tonight, that quiet phase is probably over.

This edition of Data Sheet was curated by Aaron Pressman. Find past issues, and sign up for other Fortune newsletters.
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