Zillow: Potential Upside May Be Worth the Risk

Zillow Group (ZG) is a public company that was formed in 2006 and has since been operating in the real estate industry. The company’s affiliates offer its customers an on-demand selling, buying, financing, and renting experience with its end-to-end seamless and transparent services.

The company’s main source of revenue is through advertisement selling on its website. The company was founded by Rich Barton and Lloyd Frink, and it is headquartered in Washington, United States. There are several subsidiaries, affiliates, and brands that operate under the Zillow Group, such as Zillow Home Loans, Zillow Offers, and Zillow.

I am bullish on Zillow as it has a strong competitive position in its online-based real estate services business, and its average price target implies substantial upside potential over the next year.

Strengths

According to recent reports, Zillow has almost 8000 full-time employees, and its total assets surpassed approximately $10.8 billion dollars. Suffice to say, the company has a strong presence and leadership image in its relevant industry.

Additionally, the company’s diversified product portfolio also gives it a competitive edge in the industry, with several platforms that cover each stage of the real estate life cycle. The company’s highly-skilled workforce and high level of customer satisfaction has also earned it a leadership position in the market.

Recent Results

In Q3 2021, ended in September, Zillow recorded total revenue of $1.74 billion, which, in the previous year, was $656.7 million for the same quarter. The gross profit recorded in the quarter was $240.6 million. In the nine months that ended in September 2021, the gross profit reached a total of $1.29 billion. The quarter led to a net loss of $328.17 million, which resulted in a basic and diluted net loss per share of $1.29 each. The results garnered over nine months showed a net loss of $266.6 million.

Valuation Metrics

ZG stock is a bit difficult to value, given that the company is currently undergoing a strategic pivot away from buying and selling homes in order to focus on its internet-based real estate services business.

The value proposition for the business hinges on two key factors: (1) how successfully management can complete the disposition of its housing inventory and (2) how rapidly the company can grow its core internet real estate services business.

If it can execute both well, the stock looks cheap here, and obviously the company’s board thinks so as it recently authorized a massive stock buyback.

Wall Street’s Take

According to Wall Street analysts, ZG stock has a Hold consensus rating based on two Buys and seven Holds assigned in the past three months. Additionally, the average Zillow Group price target of $73.50 puts the upside potential at 52.8%.

Summary and Conclusions

Zillow Group has one of the strongest – if not the strongest – online presences in the real estate industry. As a result, it has a very competitive position from which it can monetize its online network and significantly disrupt the real estate industry. If it can successfully do this, it has enormous total return potential, as the massive upside relative to its price target implies.

On the other hand, management just recently admitted to a costly failure of the home-flipping business, so the company’s reputation has taken a hit. Therefore, investors might want to keep in mind the risks associated with the company before adding shares.

Download the TipRanks mobile app now

​To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.