by Jacob Carpenter

Three companies operating at the nexus of technology and real estate cracked the Fortune 500 for the first time this year, each realizing huge revenue gains that signaled the sector’s arrival on the annual list.

But there won’t be much celebrating at this housewarming party for Zillow (No. 424), OpenDoor (No. 425), and Compass (No. 495). The trio were among the most unprofitable outfits on the register, combining to lose $1.7 billion.

The revenue-profit juxtaposition reflects the persistent questions looming over real-estate tech companies, which have yet to prove they can take advantage of a multitrillion-dollar housing industry ripe for disruption.

Despite the digitization of everything around us, the home buying and selling experience remains decidedly old-fashioned. A disjointed collection of real estate agents, lenders, mortgage brokers, and their peers engage in a confusing dance that often frustrates consumers.

Several startups have emerged in recent years to streamline this process, each tapping technology and mounds of data to gain an edge. While they own a tiny sliver of market share, the sheer dollar values associated with residential real estate make it possible to post billions in revenue in a relatively short time. (The Fortune 500 rankings are based on annual revenue among U.S.-based public companies.)

As Fortune’s Lance Lambert detailed Thursday, Zillow aggressively jumped into the high risk-reward business of buying and selling homes, relying on internal technology to predict which properties will produce the most bang for the buck. (Zillow’s incredibly popular app, which allows potential homebuyers to scour listings, generates a smaller chunk of revenue via lead generation for real estate agents.)

OpenDoor also serves as a residential real-estate flipper, a practice commonly known as iBuying. Compass is a nationwide real-estate brokerage firm that attracts agents with its high-tech software platform.

The three companies have more than proven their underlying concept, with combined revenues jumping from $9.9 billion in 2019 to $22.6 billion in 2021. Investors were initially willing to ride the wave with Zillow and OpenDoor, which both saw their stock price more than triple at one point last year, while Compass’ IPO stumbled out of the gate last year.

Still, profits remain frustratingly elusive at all three companies—even in a red-hot housing market with record sale prices. 

Zillow failed at home-flipping, announcing plans in November to get out of the buying and selling business after determining that its predictive technology wasn’t good enough. OpenDoor couldn’t achieve margins and scale large enough to cover expenses. And Compass’ expansion costs and higher-than-average agent commissions ate into profit margins.

With losses mounting and interest rates set to skyrocket, Wall Street has kicked the trio to the curb. Shares of Zillow and OpenDoor are down about 80% from their February 2021 peak, while Compass’ stock price is 63% off its April 2021 IPO price.

Despite the investor pessimism, all three companies offer a window for improved profitability in the coming years—provided that the real estate market doesn’t take a dramatic nosedive.

After retreating from the flipping business, Zillow can double-down on its agent- and listing-focused offerings, which generated $545 million in income last year, and focus on building its “housing super app.” Evercore ISI senior managing director Mark Mahaney told Lambert that the bullish outlook on Zillow involves the company becoming a one-stop digital shop for many aspects of the home-buying process.

With Zillow out of the picture, OpenDoor can add to its already sizable iBuying market share while refining its margins. The company surprised Wall Street in the first quarter of 2022, eking out a profit for the first time.

Compass, meanwhile, faces a tougher road to profitability—it reported first-quarter losses of $188 million—though its strong cash reserves and relatively clean balance sheet give it plenty of runway to gain market share.

It’s too early to foreclose on real estate tech as a money-making venture. Rather, the sector remains in the fixer-upper stage.