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(Zillow Image)
Rocket Companies’ planned $1.75 billion acquisition of Seattle-based brokerage Redfin sparked questions about a potential competitive threat to fellow Seattle real estate company Zillow Group, another key player in the digital real estate arena.
Rocket, the nation’s largest mortgage lender, has ambitions to become more of a comprehensive platform for home ownership, including researching and looking at listings, said Tom White, a senior equity research analyst with D.A. Davidson.
The acquisition of Redfin could accelerate that strategy, but it’s too early to say whether the deal will materially threaten Zillow’s leadership of online home search, White said.
Zillow is far and away the largest online real estate portal as measured by traffic.
Bobby Mollins, director of internet research at Gordon Haskett, doesn’t think Rocket’s acquisition of Redfin will impact Zillow. He pointed to web traffic trends in recent years — Redfin reported a 3% drop in site traffic, to 42.6 million average monthly users, in its Q4 recent earnings report. Zillow, meanwhile, reported a 3% increase in traffic to 204 million monthly unique users.
There is also risk that the integration of Redfin into Rocket doesn’t go according to plan, which could cause Redfin to lose both web traffic and market share, Mollins noted.
(Chart via Zillow investor presentation)
Shares of Zillow fell 2% on Monday following news of the deal, and dropped another 3% on Tuesday. The company’s market capitalization is around $17 billion.
In a statement to GeekWire, a spokesperson for Zillow called the acquisition announcement “another signal of a shared push toward an improved consumer experience.”
“We believe further investment in connection, tech and transparency is good for consumers, the industry as a whole, and also for Zillow,” the company said. “Through our products, services and partnerships — including our existing collaborations with Redfin — we remain committed to delivering that experience for renters, buyers, sellers and industry professionals.”
The spokesperson confirmed that there is no impact to the multifamily rentals partnership between Zillow and Redfin announced last month. As part of a rentals licensing agreement, Zillow is paying Redfin $100 million.
“Redfin partnered with Zillow on multifamily listings because Zillow is in a superior position to compete against Costar’s apartments.com,” Mollins said. “Redfin doesn’t have the capital or the scale to effectively compete in the rentals space.”
Just last month, GeekWire speculated whether Zillow could acquire Redfin, though one real estate analyst suggested that Rocket buying Zillow would make more sense given the “name brand” that Zillow would bring to Rocket.
Turns out that Rocket went with Redfin, which generates a majority of revenue from its brokerage model and employs more than 2,200 agents across 42 states. It also has its own mortgage offering.
(Via Rocket investor presentation)
Rocket Companies CEO Varun Krishna said the two companies share a “unified vision of a better way to buy and sell homes,” adding in a statement that they’ll work to combine efforts in a way that “removes friction, reduces costs and increases value to American homebuyers.”
On a call with analysts Monday, Krishna discussed how the acquisition aligns with the company’s ambition to streamline the homeownership process.
“By uniting search, buying, selling, mortgage, title, and servicing all under Rocket, we’re creating a modern, intuitive experience that puts the consumer first,” he said.
That plan shares some similarities to Zillow’s “super app” strategy to bring together disparate parts of the homebuying journey and create additional revenue opportunities beyond its traditional business of lead generation for real estate agents — which includes mortgage.
Both Rocket and Zillow are investing heavily in technology to reach customers and capture more dollars from homebuyers and sellers.
Krishna pointed to the value of Redfin’s data in helping Rocket accelerate its business.
“In today’s world, the companies with the most data will win, and no industry is safe from the disruption or the opportunity that AI creates,” Krishna said on the analyst call. “As commoditization and disintermediation accelerate, access to scaled, proprietary data is what separates industry leaders from the rest.”
