Amazon 2.0

[TMFSaintCroix]

I don’t think I agree with this. Just one winner? That’s not how retail markets typically work.

There’s a great book on this subject, written 20 years ago, called The Gorilla Game. The authors suggest that when you are investing in an industry, and you don’t know who the “gorilla” is, you buy a basket of stocks. And then when the gorilla, the alpha, the top dog, is revealed, you sell all the beta monkeys and the chihuahuas and you invest in #1.

This book was talking about tech companies, not retailers. And yet I often see the same dynamics at work in retail. Walmart and Apple can be very similar in that regard. Both companies have a lot of power, and impose their power up and down the value chain.

Anyway, you’re right, of course. There are a huge number of retailers, and there always will be. Indeed, one of my major investments is in Shopify, which seeks to empower tiny companies who want to sell things on the internet. Are these retailers small? Yes. Are they helpless before Amazon? Probably. On the other hand, Shopify is empowered by these thousands of customers. And so Shopify itself is very powerful. One of my main reasons for investing in Shopify is that Amazon tried to compete with them and failed.

Basically I see Amazon as dominating internet retail, and Shopify dominating the anybody-who-is-not-Amazon internet retail.

I concede there are, and will continue to be, many retailers in autos and houses. Maybe even many mom-and-pop retailers. Nonetheless, I would suggest…

1. Those mom and pop retailers will be bad investments

2. Those big box retailers will also be bad investments

3. Internet retail will upend cars and real estate, as it has upended so many other industries

4. A winner, a top dog, a gorilla will emerge from this pack

5. You want to identify and invest in that #1. Invest in the best and ignore the rest.

[GauchoRico]

What you are suggesting is that Amazon the retailer was not a monster stock, and AWS saved their ass. I can see why you think that way, but I fundamentally disagree.

That’s not what I was suggesting. I simply meant that a large part of AMZN’s value in its stock price is AWS. So when you said the 150+ bagger is a retail company growing that much, it’s untrue. The growth in value of the retail business was much lower.

My opinion is that you’ve made some logic errors the main one being that Zillow or Carvana will dominate as Amazon has and that those stocks will be as rewarding as Amazon was. I say very unlikely. But everyone draws their own conclusions and invests how they see fit. However, one thing that often happens is that people can become dug into their belief because they’ve argued a point or defended a company as a good investment that they believe will do well. It it sometimes different to then see new information or arguments objectively. “No. No. No. No!” Won’t make my points invalid to the future success of the businesses.

Chris

[invain]

I’m actually more interested in Redfin than Zillow. There is a storm brewing in the housing market, and if I had a crystal ball I would claim that we’ll see a big shift in the next 5 - 10 years as people wake up and start utilizing online based brokerages (obviously there is still an agent that meets with you in person) to save thousands on fees. I am relatively young but am currently on my third house. I remember when I was looking to sell my first house I immediately said to myself “this industry is a giant scam” (and I have a sister and cousin that have been very successful in the real estate industry mind you). I ended up selling that place on my own.

For our second home, I wanted to try out Redfin. They were so busy they didn’t have any agents available within a reasonable time frame, so they set us up with an affiliate. We didn’t pay the same % fee we would have directly through Redfin, but we did still save a little money. Their CEO was on NPR several months ago and I was impressed with how he presented the company.

Just to put things into perspective, since we like to discuss TAM a lot on here, the US Real estate sales and brokerage industry is a $150 billion industry and is growing at a decent rate.

[12x]

The real estate market is prime for disruption because I see no reason for a person to give up 6% of the value of their house to a real estate agent, when they can go online and sell it for 1.5%.

The days of real estate agents driving people around looking at houses with nothing but a description in the newspaper are over. Everything is done online now. So the agents are not “earning their keep” like they used to by either finding a house for a buyer or promoting for the seller. It’s all done on the MLS! You’ve got to figure 18,000 is a lot of money, and that’s 6% of a $300,000 house. That’s a lot to pay an agent when the buyer found your ad online without the help of your agent.

However the real estate agent market is very, very fragmented. There is no “gorilla” in that space. Why would there be online? We all know how Wal-Mart and Home Depot got the way they are, pricing power and being the de-facto standard for their category, discount shopping and home repair. Amazon from day one designed themselves to be the default for online shopping. Physical retailers have the advantage of proximity. A person is not going to drive across town to go to the equivalent of Amazon when they have an equivalent of Wayfair right next door. We’re just trained to go to Amazon. We have Prime, they have their credit card info, it’s one click shopping and they’re cheap. It would take a great deal of money to compete against Amazon at this point. Wal-Mart now has same day delivery in certain areas, but they have the stigma of being Wal-Mart, when Amazon even the name suggests you can find anything and everything there rather than cheap imported goods.

So what’s Zillow’s CAP? Are people going to go through Zillow to sell their house without even thinking of alternatives? There’s a big difference between buying/selling a $300k house compared to buying an X-box game on a site you know is going to be cheap and have your credit card info on file.
I do not see an easy path to garner mindshare of customers the same way Amazon did. What they supposedly have is intelligence on the real estate market. The Z-estimate. There has to be some competitive advantage there. From what I see I think the Z-estimate is garbage and a lot of others seem to agree that it’s not very accurate. So what edge do they have over Redfin, or countless others who want to buy/sell your house? I am constantly bombarded with robocallers trying to buy my house. There has to be multiple options online to sell your house quickly to a cash buyer. I’m not going to take the first offer because Zillow is convenient.

Their priority is actually having an edge over the countless other investors out there buying and selling a house who know their local market.

It’s interesting, but I agree with the other poster, Redfin is a viable alternative for this. Since they are not doing all that great right now, I didn’t dive too deep into it. I may if I were to sell a house… but I have no intention to take 80% of market value to some immediate cash buyer, leaving tons of money on the table.

CarMax, I just saw too many used car dealers go belly up over the years after their debt crushed them. So I didn’t look to hard into that one either.

But yes, internet changes retail in the fact that proximity doesn’t matter. It’s much easier to type a different URL into a browser than it is to drive across town. Amazon saw that which is why they did what they did.

[mschmit]

2) Those big box retailers will also be bad investments

Like Costco…and HD?

Cars.
Very different and hard to dominate compare to Amazon shipping a box from a warehouse.
First there are new, used and for sale by owner.
Cars have to be serviced…so some people will WANT to buy from a place that has service.
New cars (and some used ones) have to be prepped and cleaned before people are going to take delivery. Dealers already exist to do this…so they will resist all this…or be part of it and take a cut.
Some people like to take test drives…hard to do on the Internet.
Sure some people are just looking for a 5 year old Honda for KBB value and can search and slice and dice on the internet to find it. Others are buying their first car and most expensive thing they ever bought and want to “kick the tires” on a few cars, first.

There are already many online car buying and auction sites. I’ve sold two cars that way.

Mike

[TMFSaintCroix]

if you can invest in much higher gross margin, stronger hold on the customer and recurring revenue businesses with very high headroom to grow - like MDB, AYX, TWLO, SHOP, SQ and such, why would you want to invest into lower margin, no hold in the customer, one time business type of markets like car and home shopping?

That’s a great question. I got a 4-part answer:

for the amazing revenue growth

Carvana

2015: $130,392,000

2016: $365,148,000

2017: $858,870,000

2018: $1,955,467,000

(Yes, the company almost skipped the $1 billion sales mark entirely, jumping from $859 million to almost $2 billion in revenues in a year. It will be interesting to see if they skip $2 billion in sales and $3 billion in sales and their next annual number is $4 billion in sales. I say yes!).

for the sheer size of the TAM

It’s not just that Carvana is growing revenue at such a quick rate. After all, you can grow geometrically off a tiny base. Start-ups and drug companies do that all the time. What’s impressive is this fast-paced growth is happening in the context of a massive operation. Most of our favorite SaaS stocks haven’t hit $1 billion in sales yet. Carvana not only hit it, they almost skipped over it. They will get to $10 billion in sales before Alteryx gets to $1 billion in sales. Bet you a beer. And I’ll make the same bet with Zillow. That’s a 2-beer virtual beer bet.

because of the negativity

I like negativity on my investments (sometimes). Not too much negativity, it harshes the vibe. I particularly hate negativity when those negative nellies have a point and they cause doubt in me and my investments and I sell out and then I miss out on all those fantastic gains. That is horrible negativity. But negativity when I am right and I know I’m right? That is awesome. Why is it awesome? Because it causes a massive short interest, all of which translates into future buyers if I am indeed right. Also all this negativity keeps the multiple low, really low, super-low. And there’s room for expansion as understanding shifts and more people come on board. Right now, Carvana has a P/S of 4.

because it’s been a fantastic investment so far

Here’s a 2-year chart, Carvana vs. Twilio

https://finance.yahoo.com/quote/TWLO/chart?p=TWLO#eyJpbnRlcn…

Carvana: 535% growth
Twilio: 461% growth

ZScaler hasn’t been around for two years, but they lose out, too…

Carvana: 224% growth
ZScaler: 138% growth

Look, we hold a lot of SaaS companies. 11% of our port is in Shopify. That’s almost twice as high as Carvana, which has 6%. I’m not saying that Carvana is a better investment than SHOP. I don’t actually have an opinion on it. We’ve held SHOP longer and just let that winner run. But what I am suggesting is that a low-margin, high revenue, high-growth business can be a fantastic investment.

[12x]

St Croix, my only suggestion is to watch the debt with Carvana because so many used car dealers have gone bust due to the debt load. Perhaps they are issuing enough equity too. But it’s expensive to build inventory of cars where margins are razor thin not to mention the infrastructure to sell it… but maybe their inventory turnover is sufficient.

Carvana does seem to have a new model in this new era of buying cars online without haggling with the dealer. And convenient when they are offering their best cost up front. And is inventory regional? It actually wouldn’t be easy to replicate what Carvana has done if they can successfully scale it.

You’re right. There is a world outside of SaaS and I have been going that direction too. I don’t see any reason to completely dissolve of SaaS, and besides, it seems each segment within SaaS. For example I don’t see why the tide ZScaler is in, which is cloud based security, should ride and fall along with Coupa which is procurement software. Totally unrelated industries though they may both follow the business cycle but one of the appeals in SaaS id they are supposed to be saving companies money, a necessity in all economies.

[12x]

I just checked, and with all those billions carvana is doing, their gross profit is actually comparable or lower than AYX depending on what quarter you measure. Which brings to the point sales is not everything. Sales does not pay the bills. Arrow Electronics is a $30 billion/year revenue company but is only worth 5billion. Their gross margin is only a little over 10%

So with Carvana they are selling an expensive car, tying up their money in an expensive car, to sell it at a razor thin margin. Not an ideal business model. Not only do you have razor thin margins, you have a ton of money tied up to sell that stuff at razor thin margins, that you have to pay for up front! At least with Costco or other retailers they may have net 30 or longer, they may sell the inventory before they even have to pay for it.

To pay up front and then have to sit on it and sell at razor thin profit is not an ideal business model. Which is why these auto dealers that grow so fast often go bankrupt.

[TMFSaintCroix]

The real estate market is prime for disruption

yes

The days of real estate agents driving people around looking at houses with nothing but a description in the newspaper are over.

yes

However the real estate agent market is very, very fragmented. There is no “gorilla” in that space. Why would there be online?

I put this in my earlier post, but it’s worth repeating. This is the CEO of Keller Williams, a traditional realtor.

“I feel like I have no choice now,” Keller said. “I can’t allow Opendoor or Zillow to go out and be the only play in the iBuyer space and then begin to dictate terms and build brand around ‘they buy houses’.”

That’s a realtor who is now making offers on people’s houses. That’s a dramatic change in a business model. I can smell the flop sweat from here. “I feel like I have no choice now.” Why does he feel that way? Because consumers obviously are loving the iBuyer phenomenon. Keller even names names. He tells us the names of the companies who are scaring him, and their names are Opendoor and Zillow.

Opendoor is the rule-breaker in the iBuyer space. They invented it. They are the first mover. (They are also private and we can’t invest in them).

Last year, Zillow jumped in.

I was never interested in Zillow, because they never had the revenue growth. And they were unprofitable. And I didn’t much care for their business of “collecting eyeballs” and selling advertising space. It seemed to me a niche market. I just figured David Gardner was wrong about this one.

But here’s the thing I missed. Zillow now has a huge database of real estate information they have built up over their 14-year history. And now they are starting to monetize all of this knowledge. Their light business model is allowing them to shift quickly into adjacent businesses. All of a sudden, they’re providing mortgages (look out, LendingTree). But of course the big one is the iBuyer phenomenon.

Redfin is a viable alternative for this.

I disagree, but maybe you’re right. Definitely a gorilla game going on. Zillow, Opendoor, Offerpad, Redfin, Keller Williams. It’s worth googling iBuyer and reading up on it. I just discovered this site, pretty interesting…

https://www.mikedp.com/opendoor-ibuyer-business-model

[12x]

St Croix you bring sone interesting topics to the table but my concern is not all revenue is equal. For example carvana now has over $400 million in long term debt. Which is fine for now. They could have years of growth with equity issuance and debt. But once I hear articles about concerns over carvana’s debt, I’d probably sell. Consider that to Alteryx, which just recently had $12 million in debt. And both of these companies are generating about the same gross profit. One is in a scalable business one requires a huge amount of investment for the same gross profit growth.

Zillow is becoming more interesting. But I’d rather not buy a company that buys houses and resells them. Unless they are working with a bank that gives unlimited credit line and they’re actually good at what they do. TBD. Still requires debt though. Is Keller Williams good big to compete? Highly unlikely. Even open door. VC can only take you so far.

Historically these cash buyers will only buy at a huge discount but if Zillow is giving full price easily, and able to make a slim margin on it, that’s a huge game changer.

Again the revenue as a result is only pass through, but the gross profit could be interesting. Still something that could become a mess in a down real estate market.

Another reason assets light companies are ideal… but anything can happen within a few years.

[TMFSaintCroix]

Zillow is becoming more interesting. But I’d rather not buy a company that buys houses and resells them.

I’m enjoying this site:

https://www.mikedp.com/opendoor-ibuyer-business-model

Click on that video on the left. Will iBuying Become Mainstream. Very interesting.

And this is worth a read: Zillow’s billion dollar seller lead opportunity

https://www.mikedp.com/articles/2018/11/12/zillows-billion-d…

If you’re thinking about Zillow doing iBuying and you’re not thinking about seller leads, you’re thinking about it the wrong way…

The value of the seller leads is almost 30 times the profit from flipping houses…

Zillow doesn’t need to actually buy and sell a lot of houses for this model to generate significant profits for the company in a national rollout.

The other interesting thing is that while the iBuyers have forced Keller Williams to start making offers for houses, the reverse is happening, too.

Opendoor’s pivot to agents

https://www.mikedp.com/articles/2018/11/4/opendoors-pivot-to…

[sunriseal]

The important point here is that neither Zillow or Carvana have the same ability to scale as the SAAS companies that we are looking at here. A software company has a one-time big cost to create a sellable package, followed by much lower support costs. The scale leads to very high margins if the product sells well.

The margin on Zillow and Carvana isn’t going to increase substantially as they grow. They’ll continue to be heavily capital-intensive with inventory and carrying costs. And neither one has a unique product.

Having said that, both are probably good investments, just not in the same class as some of the others discussed here.

[tamhas]

A software company has a one-time big cost to create a sellable package, followed by much lower support costs.

Actually, companies often create core products and bring them to market, but then continue to invest heavily in development creating new companion products, adding functionality to existing products, and adjusting to the needs of individual customers. When I first opened doors as a ISV for an ERP software vendor the package I got was about 250 KLOC. 10 years later, my suite was 1.7 MLOC, including replacing the original 250 KLOC so that my product was independent of theirs.

[etagordon]

Reading this link made me think of a passage I recently read in a book called The Black Swan, by Nassim Nicholas Taleb. He wrote a section talking about how to accumulate wealth. He said it is obviously better to build something once and sell millions of copies, than having to build the same thing over and over again. His example is an author who writes a book one time and then sells millions of copies compared with say a plumber who learns his skills and then has to repeat his effort time and time again.

So Carvana has to build physical structure for the cars. Even if show rooms are few, the inventory has to be stored somewhere. If you live within 100 miles of a showroom, Carvana will deliver the car of your choice to your front door. If after an hour of driving you don’t like it they will take it back. If after six days of driving you don’t like it a truck will return and take the car back. Sounds like a lot of moving pieces. But they have the ability to purchase your trade-in cheaply. (and of course your car has to be made showroom ready.) Lots of moving pieces, people and capital investment.

Cars are becoming more and more similar. With quality going higher and higher, cars are becoming a commodity. two years ago I bought a car via e-bay. I shopped Carvanna and visited local dealerships to test drive the cars I was interested in. In the end, I saved thousands of dollars buying a car off e-bay. I thought the Carvana process terrific, but in the end, my wallet won. My car was a Hyundai Genesis and was then and still is under new car warranty. Now, for a car not under warranty, perhaps the results would have been different.

As I understand it, Carvanna makes money three ways: selling the car, making a loan, and buying inventory (think trade-ins) cheaply.

So, having said all this, I am still thinking build once and selling millions of copies, as in software, has to produce higher margins than buying and selling individual cars, regardless of projected revenue growth.

Gordon

[bjurasz]

Interesting stuff about Zillow and Redfin. I tend to agree real estate is ripe for disruption, in some way. Just not sure how yet. However a friend of mine has been an agent with ExP World Holdings (ticker symbol EXPI) for a few years now and swears by it. They basically run their entire organization via Cloud based apps. No physical presence, etc. They are growing fast, which makes me want to consider them as a purchase. But from what I can tell their disruption is on the agent model itself and not necessarily on the customer-facing side (i.e. no reduction in fees). Not sold on this idea yet but intrigued by all three names here.

[TMFSaintCroix]

The important point here is that neither Zillow or Carvana have the same ability to scale as the SAAS companies that we are looking at here.

That’s wrong. Not only are Zillow and Carvana scaling their business, but they are doing so far more rapidly than SAAS companies.

A software company has a one-time big cost to create a sellable package, followed by much lower support costs. The scale leads to very high margins if the product sells well.

I see, you’re talking about scaling to profitability. You’re right. I absolutely agree that software companies have higher margins than retailers. That’s a no-brainer. I just disagree that retailers are bad investments. No, they’re not. If you’re buying the right retailer, they can be fantastic investments.

Here is a big negative when it comes to tech stocks: the market is limited. The more limited it is, the weaker the tech stock. I tried to invest in optical stocks for years and years, because I thought the technology was important. But a major problem with these stocks was that the market was so limited. How many potential customers did JDS Uniphase have? Basically they were limited to companies who were building out telephone infrastructure. Since the customers were so limited, all of those tech stocks were bad investments.

I’m not a techie, which means I’m really weak at analyzing how cool or important a technology is. I would suggest the more you have to explain or translate a technological innovation to people, the more dangerous that investment is. If it’s difficult to understand, that means the customer/decider pool is more and more limited.

Peter Lynch used to joke, “I don’t even know how electricity works.”

One of the powerful benefits of SaaS is that you don’t have to first convince the chief technology officer to buy your stuff. That’s what a “land and expand” strategy is. You can convince anybody in the business to try your service. And then as it catches on within the business, the uppity ups may decide to make a company-wide purchase.

Smart tech companies try to expand their market by making their technology easy for non-techies to understand. That’s why internet companies have been fantastic investments. They are tech stocks that are easily understood by many. I don’t know how Google works, but I understand Google. I don’t know how Carvana works, but I understand Carvana.

The potential market for a Google or a Carvana or a Zillow or an Amazon is far greater than the potential market for an Alteryx or a Twilio. Don’t kid yourself about TAM, it’s very important.

The margin on Zillow and Carvana isn’t going to increase substantially as they grow. They’ll continue to be heavily capital-intensive with inventory and carrying costs. And neither one has a unique product.

All this is true. Nonetheless, retailers can (and do) scale, and get very big. And internet retailers scale far more quickly than off-line retailers. And there are powerful networking effects at play. If Carvana has more car options than anybody else, that’s where you go to shop for a car. If Zillow is the company with all the housing data, that’s where you go to find your next house.

I feel like I was having these arguments 20 years ago!

[12x]

That’s wrong. Not only are Zillow and Carvana scaling their business, but they are doing so far more rapidly than SAAS companies.

Just look at the balance sheets and income statements of AYX and CVNA. We are seeing this play out in real time. CVNA now has $526 million in long term debt. $1.2 billion in total debt. AYX? $316 million in total debt. I don’t know why you’re so concerned over selling $2 billion, or $3 billion, and focusing on top line, when AYX is making more gross profit on a much smaller revenue number. So who is really scaling their business faster when AYX is making more gross profit? Who cares what sales are quite frankly! It’s not what matters.

Yes, CVNA has a large tam. By that definition you should also be buying Beyond Meat, because it too has a larger TAM than AYX. CVNA’s gross profit does not even cover their SG&A expense. They are a long way to profitability and they’re going to take a lot of debt to get there. Then that interest on the debt is going to be a bigger portion of the cost of selling a car.

AYX will be able to generate $1 worth of profit at a fraction of the cost of CVNA. All business is, is making the most profit possible with the smallest investment possible. The economics of AYX are much, much better than CVNA’s. I would never focus on just TAM but the economics of that TAM. Who cares if CVNA gets to $10 billion in sales when they can’t even cover basic operating expenses let alone show a profit. As I said before, Arrow Electronics, $25 billion year revenue business, worth $5 billion. Sales is not everything.

The reason JDSU is not a good business is because it’s a mature business catering to a few telco companies, and extremely competitive due to the concentrated customer base. It has been that way for years. CVNA, likewise is in a very competitive business selling cars, the same cars you can get at any other dealer. There is absolutely no differentiation in products. Other than “they have a bigger selection”, meaning a bunch of money tied up in inventory. That they make next to nothing on. There is no scaling up of buying used cars as a CVNA the same way WMT was able to buy in bulk from manufacturers.

It’s fine if you want to buy CVNA but in no way shape or form does it mean it’s better than AYX because it’s a bigger TAM market. Especially when one is growing dramatically and the other is not.

[12x]

His example is an author who writes a book one time and then sells millions of copies compared with say a plumber who learns his skills and then has to repeat his effort time and time again.

This is an example of someone who actually tries business finds out. I found this out through two side businesses. 1) reselling vintage furniture, and 2) creating metal products with CNC equipment.

With reselling vintage furniture, finding the furniture at a price you could actually make money on is next to impossible. Sitting around at auction houses bidding against a bunch of other dealers not to mention people who wanted to buy it for themselves does is not an ideal method for acquiring product to sell. Nor is camping around in front of estate sales. Then the cost of selling it. And sitting on all the inventory until it sells. Only to repeat the process once you do sell it. All your money goes to inventory that sits there. That you possibly have to pay someone to refinish to actually sell it. This was always a hobby for my interest in furniture because I didn’t make a dime on it and I competed with other people doing the same or not making much.

With CNC manufacturing, getting inventory is just as easy as calling a steel supplier on the phone. Raw materials are only a small portion of the expense. I can buy sheet metal and let it sit there until it’s used with no problem, the raw materials are only 1/5 the cost of the sale. Cash flow is much better. Profit is much higher, and easier. There is differentiation between product so you can charge more. You can scale by actually making product and sell it at a price you could actually afford to employ people to make it for you. The only cost is the machinery and repairing it. Which can add up but it’s no worse than having all your money tied up in furniture inventory. Software companies have it even easier. They have no machinery they have to buy. Total cost is up front developing the software.

All business is is making the maximum profit with the smallest investment possible. Carvana is in a terribule industry for that to happen.

I just bought Taleb’s books again and reading Fooled by Randomness right now. Read two of them years ago but can’t even remember that example. Some things can just get glanced over without much thought at the time because they don’t mean anything to you.

[sunriseal]

I feel like I was having these arguments 20 years ago!

Ha. I’ll admit that somewhere in the Fool archives from 20 years ago, there’s a post where I said something like Amazon is just a bookstore, Walmart will eat their lunch!

The point is that for Carvana to sell a car, they need to go to an auction and buy it at a small discount to retail. To sell another car, they need to go out and buy another one at a small discount to retail. Merchandise isn’t going to cost substantially less with quantity. Same with Zillow.

Both companies have substantial competition that limits their asking prices. Carvana is competing against Carmax, AutoNation, Avis, and every new car/used car dealer lot in the area. Zillow’s pricing is limited by competitive values too.

A software company has roughly the same development cost whether they sell one copy or a hundred. The companies that we are looking at here are the ones that have already developed a marketable niche product that is somewhat differentiated from their competition. Profit margins will soar once enough copies are sold to cover costs. We’re buying (and selling) stocks here in the hope that they’ll reach that level quickly.

Does that make Carvana and Zillow bad investments? I hope not because I own some Zillow and Carmax, a Carvana competitor. I hope that both continue to give me good returns at relatively low risk, but I don’t consider either one part of my Saul’s Superstar portfolio.

[tamhas]

Same with Zillow.

Except that Zillow doesn’t need to take title, so there is none of that inventory expense. And, if at all successful, they probably don’t have to work very hard at finding properties since sellers will bring the property to them.