Investors are betting big on Zillow's big move; Flambe Stock by Investing.com

By Charley Blaine

Investing.com – Zillow Group (NASDAQ 🙂 has changed CEOs on Thursday and has announced that he is considering great things for his business of buying and selling homes.

And investors largely adhered to this idea Friday, with a 22% rise in the title, approaching $ 43. But this remains down by nearly 35% from the peak of 65.42 dollars reached last June.

The risks of the strategy are important, even acknowledged his co-founder Rich Barton. In taking over the reins of Spencer Rascoff, Mr. Barton said his challenge would be to "spark the enthusiasm of investors for this trip with us on the abyss".

In three to five years, Zillow is buying and selling (after some adjustments) more than 5,000 dwellings a month, generating revenues of about $ 20 billion a year, which would translate into a market share of 1.2% nationwide, based on sales of about 5 million homes.

In addition, mortgages will be behind the financing of a third of purchases, a brand new activity.

The plan assumes a set of fairly well-off clients. The average price of houses is around $ 333,000. At the end of the fourth quarter, the company owned 509 homes worth about $ 320,000, according to the company's press release. According to the National Association of Realtors, the median price of an existing home was $ 247,500 in January.

The idea is to use Zillow's technology to streamline the process of buying a house, until closing. Zillow's online site has revolutionized the way agents work. The goal is to lead the revolution to the logical conclusion.

Well, but until now, the program, available in seven markets, costs Zillow. She sold homes for $ 52.4 million and lost $ 62.4 million. Even on an adjusted basis, when Zillow's core business generated adjusted earnings before interest, taxes, depreciation and other charges of $ 236 million, the home sector lost $ 45 million.

And even if profitable, buying and selling homes is a low margin business, about 2%. However, generating $ 20 billion in home sales would mean a potential gross profit of $ 400 million – if all goes well and business is generally stable. But as the 2008-2009 crisis has shown, activity can be very volatile and sales in recent months have slowed down.

The Zillow revolution generates growth. The fourth quarter business figure grew 29% and the annual business turnover of 1.3 billion USD, up 24% over the same period of the previous year. Fourth quarter results broadly met expectations.

Zillow was created by Barton, Rascoff and Lloyd Frink, who started Expedia (NASDAQ :), which has greatly disrupted the travel industry.