Will Zillow Homes Build a Durable Competitive Advantage in the iBuyer Market?

In 2014, Opendoor started buying and selling homes online. While many other companies have since entered this growing industry, Opendoor remains the leader in what has become known as the iBuyer market. For an extra ~$6,000 (on a $300,000 house), a homeowner can be out of their house in a week or two and avoid the normal selling process—listings, showings, dealing with a realtor, negotiating prices, and months of uncertainty.

In April 2018, Zillow entered the iBuyer market. On their Q4 conference call two weeks ago, they made it clear that their new segment, Zillow Homes, will be the main focus of theirs going forward. Not very often does an $8 billion-dollar company that dominates its niche (real estate traffic online) announce a strategic shift as big as this—especially when the new business is going to be low margin, capital intensive, and cyclical.
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The Future Looks Bright for Where Food Comes From: China Exports, Sustainability, and Progressive Beef

From 2013 to 2018, Where Food Comes From more than tripled their revenue, yet their stock price is basically flat. I think there are two main reasons. While they have expanded their scale quite a bit, they have yet to show much operating leverage. This is fine as long as the investments widen their moat and improve their long-term economics, which I believe they have.

Second, there is already a lot of growth expectations built into the stock. This is because Where Food Comes From benefits from many large tailwinds including animal rights, food sustainability, and increased transparency in the food supply chain. It seems like a few of these trends may be approaching a tipping point. In my 2016 Where Food Comes From write-up, I predicted:

I think the most likely scenario is a few more years of 10-30% growth and then at some point a watershed of business comes via ADT’s next phase kicking in, more states (or the federal government) requiring non-GMO labeling, McDonald’s or one of the other giants forcing their farmers into audits, China ramping up meat imports, etc.

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Netflix: The Powerful Combination of Scale and Network Effects

Netflix has the most scale of any streaming service. They have the most subscribers, the most content, and the largest content budget. This scale advantage benefits their business in many ways.

Having the most users allows Netflix to buy content cheaper than their competitors on a per user basis. The cost of a new show gets spread over Netflix’s 139 million paying members while their competitors have to spread that same cost over a far smaller membership base. All things being equal, Netflix can pay more than their competitors for a piece of content and still get the same, or better, return on their investment.
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YouTube Joins Facebook in Fight Against Human Biases

YouTube made an important announcement two weeks ago regarding how they are changing recommendations. In summary, YouTube is trying to protect us from our own cognitive biases. Unfortunately, humans are more likely to click on things that are sensational, negative, or fear-inducing.

To be fair, this didn’t start with the internet. For many years, the adage of news programs has been “if it bleeds, it leads.” Basically, news stories get better ratings talking about murder than about decreased childhood mortality.
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Finding Durable Moats is the Key to Finding Good Investments

In November, I spoke at a University of Texas MBA investing course. After introducing myself and my investing strategy, I spent the bulk of the presentation analyzing the competitive advantages of Amazon, Facebook, and Tesla. Specifically, I gave my opinion on how long-lasting each of their moats potentially is and tied that back into my long-term focus. Click below to view the presentation slides.

Finding Durable Moats is the Key to Finding Good Investments

Tesla and Product-Market Fit

Though not on purpose, Tesla has been on my mind a lot lately. Professionally, I’ve been researching self-driving cars and that involves reading up on Tesla (and Waymo and several others). The new book Autonomy is great by the way. And then personally, I just got a new car and thus spent the past several weeks going through the car buying process.

I hate everything about the car buying process and I don’t think I’m alone in that. Every friend I’ve talked to recently about buying cars has said the same thing. I started by entering my information into a few automaker websites to learn more. I immediately regretted that decision. The next few days I was bombarded by calls, texts and emails from salespeople at nearby dealerships.
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