Zillow Group (NASDAQ:ZG), which also trades as Zillow (NASDAQ:Z), is practically synonymous with the U.S. housing market. If the American residential real estate market is doing well, then Zillow will generally thrive. How will Zillow Group perform during challenging housing market conditions, though? I am bullish on ZG stock, as the company’s resilience during tough times suggests that Zillow could really shine if the housing market improves.
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Zillow Group provides a popular online real estate marketplace for buying and selling homes. As we’ll see, Zillow is only moderately well-liked by analysts. One analyst, Trevor Young of Barclays (NYSE:BCS), even gave ZG stock a Sell rating and a pessimistic price target of $32.
Yet, I encourage you to learn all of the relevant facts about Zillow Group before deciding whether you’re bullish or bearish. Sure, it’s a difficult time to run a business in the American housing sector, but Zillow’s eye-opening results should convince you to take a more favorable view of the company.
A Harsh Backdrop for Zillow Group
Why is it so difficult to navigate the U.S. housing market in 2024? The answer comes down to the “higher-for-longer” interest-rate policy. The Federal Reserve’s series of interest-rate hikes had a profound effect on mortgage rates, to the point where the U.S. 30-year annual mortgage interest rate touched 8% in October.
The mortgage rate has backed off from 8%, but it’s still fairly high, and that’s bad news for housing market businesses like Zillow Group. People are reluctant to sell their homes and relinquish their 3% and 4% mortgage rates just to end up buying a new home with a 7% mortgage rate.
Furthermore, it’s looking less likely that the Federal Reserve will cut interest rates in March. A June interest-rate cut is still definitely on the table, though, and that would be a welcome development for Zillow Group.
Given this harsh backdrop, it’s remarkable that Zillow has managed to post one quarterly EPS beat after another. Moreover, Zillow Group’s revenue has remained fairly steady over time. Speaking of EPS and revenue, let’s now delve into Zillow’s most recently reported results.
Zillow Group’s Better-Than-Expected Quarter
It doesn’t make sense to expect absolute perfection from Zillow Group when the housing market is under pressure. Rather, Zillow’s results should be taken into their proper context and understood as being pretty good, considering the circumstances.
Here’s the lowdown. In 2023’s fourth quarter, Zillow Group’s revenue grew 9% year-over-year to $474 million, surpassing the consensus estimate of $452 million. This result also came in above Zillow’s previously disclosed guidance range of $430 million to $455 million.
When we break the numbers down, there are some notable highlights embedded within Zillow Group’s Q4-2023 revenue. In particular, Zillow’s Rentals segment revenue grew 37% year-over-year, while the company’s Mortgages segment revenue increased 22%.
Zillow Group co-founder and CEO Rich Barton concluded, “We reported great revenue numbers across the whole of our increasingly diversified and growing business.” Now, that might be a slight exaggeration. After all, Zillow’s Residential segment revenue only grew 3% year-over-year in 2023’s fourth quarter. Still, Barton’s point is duly noted, and his confidence is understandable.
Turning to the bottom-line results, I wish I could say that Zillow Group is currently profitable, but that’s simply not the case. In Q4 2023, Zillow reported a net loss of $73 million. Again, however, seeing the context is crucial to assessing Zillow Group’s performance. Analysts expected Zillow to report a net loss of $77 million, so the company’s result represents an earning beat.
Just as importantly, Zillow Group CFO Jeremy Hofmann remained optimistic during the company’s quarterly conference call. While acknowledging the “tough macro existing home sales environment,” Hofmann still expects Zillow’s “residential revenue to outperform Industry in Q1” as the company’s “growth pillars begin to contribute to revenue and the Investments we have made in our overall funnel continue to deliver benefits.”
Is Zillow Group Stock a Buy, According to Analysts?
On TipRanks, ZG comes in as a Moderate Buy based on nine Buys, two Holds, and one Sell rating assigned by analysts in the past three months. The average Zillow Group price target is $60.63, implying 9.8% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell ZG stock, the most profitable analyst covering the stock (on a one-year timeframe) is Tom White of D.A. Davidson, with an average return of 67.85% per rating and a 91% success rate. Click on the image below to learn more.
Conclusion: Should You Consider Zillow Group Stock?
As long as mortgage rates are elevated, investors shouldn’t expect too much from Zillow Group. The company isn’t currently profitable, but Zillow’s revenue is unexpectedly strong amid a tough housing market environment.
Consequently, traders are buying Zillow Group shares today, and there’s room for the rally to continue in 2024. All in all, I’m impressed with Zillow’s resilience and am considering ZG stock for a long position today.
