Zillow Group (NASDAQ:ZG) had a rough 2018. The price of Zillow stock has fallen by around half since the bear market in tech started last July.

But ZG is no longer a tech stock. It’s a speculative real estate play. Zillow has launched Zillow Offers, which buys houses and then tries to re-sell them, just as the residential-real estate business is starting to roll over.

ZG is far from the only company that’s diving headlong into house flipping.

Redfin (NASDAQ:RDFN) and privately-held Opendoor, Offerpad, Owning and Knock are all now in the game. 

The pitch is that these companies focus on getting the people selling the house into another place before they unload the old one. Providing that service can enable Zillow to increase its margins, but also forces it to own unsold homes longer, raising its risk.

Zillow’s Flip

Zillow’s business was supposed to be data. ZG calls itself a real estate-database company and has owned its former competitor, Trulia, since 2014. 

Buying and selling real estate has already transformed Zillow’s balance sheet. The company’s negative cash flows from investments have increased, but its positive cash flows from financing home purchases have also risen.

The cash flows from its investing and financing activities now dwarf those from operating its data business, upon which it previously focused. As a result, the owners of Zillow stock are now much more leveraged to the house-flipping business than to the company’s original real estate-data business.

As anyone who watched TV shows like HGTV’s Flip or Flop knows,flipping carries huge risks that are partially based on time and price. If housing prices fall, flippers can’t get their investments back. If housing markets even slow, flippers can also lose out because holding a house costs money. This risk increases as interest rates rise because in such an environment, borrowing money to buy houses is more costly.

Aware of these risks, corporate flippers like Zillow are going at this market-by-market, focusing on the coasts, where the real estate market has been strongest.

But what about Zillow’s original business model?

Start Spreading the News

Zillow bought Trulia to gain control of the real estate-data market, but it hasn’t worked out that way.

Rupert Murdoch’s News Corp. (NYSE:NWS) bought Realtor.com back in 2014. Realtor.com serves the National Association of Realtors, the realty trade association. Additionally, News Corp. acquired OpCity, a data service for agents, last year.

Meanwhile, in addition to fighting News Corp, Zillow has also gotten into battles with regulators and agents. For instance, regulators, spurred by complaints from traditional realtors, are forcing ZG to make additional disclosures to home buyers , and Zillow agreed to accept less data from agents after a number of them complained about its data-sharing requirements. The chief beneficiary of these changes is News Corp.

The irony is that just as the Washington Post Co., now owned by Jeff Bezos, became a captive subsidiary of the profitable Kaplan testing empire early in this century, so Realtor.com is becoming an ever-larger part of News Corp.’s business, representing 11% of its revenue and nearly 30% of its profit in its quarter that ended in September.

News Corp. is milking newspapers to get into data, and Zillow is milking data to get into flipping.

Trying to Prop up ZG Stock

Rich Barton, the co-founder of Zillow, recently tried to prop up Zillow stock by buying 700,000 shares of ZG stock, against a float of 139 million, for $19.2 million. Director Jay Hoag also tried to boost Zillow stock with his wallet, buying $25 million shares of ZG stock. 

Their large purchases of Zillow stock came in the wake of the company’s third-quarter results that were considered a failure by Wall Street, primarily because the revenue of its real estate-data-and-advertising business came in below its guidance after the company began phone screening potential home buyers who answer the ads.

If ZG comes out the other side of its current troubles, Barton and Hoag stand to profit handsomely. Analysts, however, remain skeptical about Zillow stock.

The Bottom Line on Zillow Stock

The bottom line on Zillow stock is that ZG is no longer a data company, but a real estate company. When you’re betting on ZG stock, you’re betting on the real estate market staying hot.

Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.