Zillow Group, Inc. (ZG, Financial) operates leading U.S. real estate sites, a mortgage marketplace, and the Zillow Offers home-buying business. Shares appreciated on strong quarterly results due to acceleration in the core Premier Agent business and continued traction in the Offers business. We believe Zillow is well positioned to capitalize on the large opportunity in online real estate advertising, with substantial upside from its Offers business which we think can grow Zillow’s addressable market in homes for sale and generate additional leads for Zillow Premier Agents.
Zillow’s shift in its strategic business plan is also bearing results. Its core business has seen a re-acceleration in growth with the introduction and user acceptance of its Premier Agent product. This tool moves the company from generating revenue based on real estate leads to participating in the commissions of sales agents. That has increased the productivity, caliber, and retention of its independent agents. Further, we expect the company to expand its Homes business line to a national footprint this coming year. Early results are promising, and investors have so far underestimated the ancillary revenue achievable through Zillow’s ability to purchase and sell homes.
From Ron Baron (Trades, Portfolio)'s Baron Partners Fund fourth-quarter 2019 shareholder letter.
