Realtosh

ZipRealty: Challenging Times, But

You mention Murdock, but overlook Diller, Zip would be a good target for IAC and their realestate.com division that is building out a brokerage business.

ZipRealty: Challenging Times, But

I guess you're recommending the management team, because Zip has NO PROFITS. Most supposed so-called full-service-but-reduc... real estate companies are bleeding cash. In fact they were bleeding cash during the housing boom. Right now during a housing bust, I wouldn't expect them to do any better. In fact, most are doing quite badly.

On the East Coast, Foxtons just went bankrupt and shut down all operations recently when they were unable to find any suitors for another round of financing to the tune of tens of millions of dollars. They had burned through maybe $50million dollars to try to earn less money per transaction than other non-internet brokerage companies. Guess no one wanted to provide more money for the camp fire.

We gave up on most unprofitable internet companies nearly a decade ago, when the internet stock bubble burst. This housing bust will shake out a lot of poorly thought through business plans in the real estate industry. Do you think ZipRealty has what it takes to become profitable?

I see no reason to own a company without profits and without any reasonable means of reaching profitability. I agree that ZipRealty is undervalued. If there were any reasonable hope of them ever reaching profitability than now would be a great to buy them. Right now would be the time to be buying any good realty company, since they are all undervalued. However, I would want to know that the company would become profitable at some point. As far as I know neither ZipRealty nor RedFin has ever shown profitability, nor do I foresee profitability on the horizon. And at the most basic calculus, what we are buying in a company are its profits. Zip doesn't have any; never did. If they won’t be profitable, then there is no reason to own them, nor is there any reason for anyone else to. So to hope for an acquisition of a company without profits is like hoping to not get stuck with the hot potato.

I do think that the real estate industry is ripe for a metamorphosis. However, I have not yet seen a widespread or highly visible alternative model that can have staying power and sustainable profitability. I have some ideas, but you won’t read about them in a comment on a blog. Ideas for profitability in a $3B marketplace, where others have tried but not achieved, would be discussed in meeting for angel funds or possibly in a second round of financing. The financing for an internally profitable business model would be by definition totally unnecessary and would be considered to grow the model geographically. But internally in each geography the model would have to be profitable to be worth its’ salt. I can’t believe that we are still funding unprofitable internet companies without a plan to reach profitability, in any industry.