Therefore they get carried out on stretchers. Short sellers and value oriented Hedge Funds miss this fundamental reality over and over again. I remember reading over 20 years ago that Starbucks lost money with every cup of coffee they sold during it’s early rapid expansion phase. Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here. Click on the beer and iced-tea mug to find out how: Read… The State of the American Debt Slaves, Q1 2019Įnjoy reading WOLF STREET and want to support it? You can donate. It’s a tough job, but someone’s doing it. And it shows to what extent this market and the entire hype machine around it are twisted. When a stock market rewards companies that have always lost money, such as Zillow, for coming up with a way of losing even more money, it takes the incentive away for management to build a functional profitable business model. Friday at about noon, some of the excitement of after-hours trading has tapered off and shares are up 8% and heading down. In home flipping, there are very few economies of scale so we’re looking forward to seeing a beautiful cascade of losses.īecause revenues jumped like this – no matter that this caused Zillow’s losses to more than triple – shares soared 19% in evening trading on these “better than expected” revenues and the prospect that Zillow will expand its ruinous home flipping operation to many more markets and boost its losses further.
And now it has figured out a way to lose a lot more money.īut Zillow is apparently not yet losing enough money, and so it is going to expand this ruinous home-flipping operation from the eight metropolitan areas at the end of March to more markets to boost its revenues and its losses. And it has been on an acquisition binge, buying all kinds of other companies. It has been a publicly traded company since 2011. This loss amounts to a stunning 15% of revenues. In other words, a 51% increase in revenues caused its quarterly loss to soar by 263% to $67.5 million. This constituted three-quarters of the total revenue increase of $154 million (or 51%) to $454 million in total revenues in the quarter.Īnd due to the loss at its home flipping business, Zillow’s total loss soared by 263%. Zillow lost 37% on each flip on average.īut it performed miracles because the sales of those houses – a business activity Zillow didn’t engage in a year ago – added $128.5 million to revenues.Zillow lost $109,190 per flip on average.This loss of $45.2 million on 414 home flips means: So, revenues of $128.5 million from selling the homes, minus $173.7 million in costs and expenses associated with these home sales, for a loss on its home flipping operations of $45.2 million.
$14.4 million in general and administrative expenses.$12.3 million in technology and development expenses.$20.8 million in sales and marketing expenses.So Zillow booked the following expenses associated with its home flipping operations: This amounts to an average gross profit (selling price minus purchase cost) of a meager $14,700, or 4.9% per flip.īut it costs money to buy homes, get them ready to flip, market them, finance them until they’re sold, and deal with the transactions, in a corporate manner.The purchase cost of these homes added $122.4 million to cost of sales, for an average purchase price of $295,700 per home.Sales proceeds added $128.5 million to revenues, for an average selling price of $310,400 per home.So let’s see how Zillow’s new thingy did in the quarter ended March 31: In terms of timing: The revenues, costs, and expenses associated with buying and selling the house are booked on the income statement in the quarter in which the sale of the house closes.
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