Zillow and Redfin Undergo an Ambitious but Risky Pivot to iBuying

We are launching coverage of Zillow Group and Redfin as both companies attempt to reinvent themselves as iBuying platforms. Historically, Zillow built its business through its website, which essentially sold advertising to real estate agents seeking exposure to clients. Meanwhile, Redfin opted for an in-house broker model centered around its proprietary website that was an attempt to drive down costs for the home buying process. Although both business models achieved moderate success, the two companies are now pursuing iBuying, where they will purchase and sell homes directly from consumers. Although we expect this shift to result in significant growth, we are wary of the added risk it represents. Our fair value estimate for Zillow is $41 per share while our fair value estimate for Redfin is $26 per share. We do not think either company possesses a competitive advantage and assign a no-moat rating to both.