2024 Real Estate Business Profitability Roundup

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2024 was another year where a receding tide – a down market – revealed truths about business model resiliency and clues about future growth.

Why it matters: Profitability, the mother of all metrics, is a proxy for a healthy business model with product market fit, financial viablility, and can generate returns for shareholders.

  • Starting with the brokerages, eXp Realty comes out on top as the most profitable brokerage in the United States, with almost twice the operating cash flow as Compass.

 
 

Adding top real estate portal Zillow and arch-disruptor Opendoor into the mix expands the field and shows the vast discrepancy across varied business models.

  • Zillow, with a high-margin core business, is a cash-generation powerhouse, while Opendoor continues to lose money buying and selling houses (asset-light vs. asset-heavy).
     

  • Remember when Zillow exited the iBuyer business? Smart move.

 
 

Throwing Rocket and CoStar into the mix illustrates the high-stakes game of the Portal Wars – to-date, it’s been Chess without Checkmate.

  • These companies are using profitable core businesses (mortgage and commercial real estate) to fund a massive expansion into residential real estate. 
     

  • With its $1.75 billion acquisition of Redfin, Rocket is the new entrant to watch.

 
 

CoStar’s Operating Cash Flow dropped $100 million from the previous year – the most significant (and only) decline in six years.

  • CoStar has been investing heavily in its residential real estate portal, Homes.com.
     

  • Perhaps related, CoStar recently reached an agreement with a pair of hedge funds to refresh its board, “articulate a disciplined capital allocation strategy,” and “review the Company’s ongoing investment in Homes.com and ensure an appropriate timeline for profitability.”

 
 

Opendoor’s Operating Cash Flow has been negative for several years now, which begs the question: how much money does it have in the bank?

  • The answer is about $600 million as of Dec 31, 2024.
     

  • But, perhaps worryingly, its cash balance keeps declining – it’s down by about half ($600 million) over the past two years.

 
 

What to watch: The data reveals a few areas of interest.

  • How aggressively will Rocket use its massive cash advantage to grow its presence in the portal and brokerage space?
     

  • Will there be a change in CoStar’s level of investment in Homes.com?
     

  • And, will Opendoor consider a business model pivot before its cash runway expires?

The bottom line: It may sound elementary, but a business needs to have a business model that works – and that means consistently making more money than it spends.

  • It is those businesses – generating free cash flow – that are able to invest for growth, give returns to shareholders, and use the profits to launch new ventures that add value in the real estate ecosystem.
     

  • Cash is funding significant POWER MOVES heading into the rest of the year: the exclusive inventory battle, Rocket's entry into the portal wars, and the massive investments into end-to-end ecosystems.