Zillow Group
Inside the Numbers
Zillow reported second-quarter earnings per share of -$0.17 which beat consensus expectations of -$0.65. Revenue was $767 million which was higher than expectations of $610 million and 28% higher over the previous year. There was strength across the board, as total traffic to its websites was 14% higher. In addition to revenue growth, margins also slightly increased.
Guidance for the next quarter was also higher than expected. However, the company warned that its major challenge remains a low inventory of homes for sale due to the strong housing market. While this might impact near-term results, it's a positive signal that the housing market is strong which will ultimately be a major driver for Zillow in the longer-term.
Stock Price Impact
Zillow's stock has been a big winner of the post-coronavirus market. It's up 330% since the March low. The company has a huge total addressable market, as annually, real estate services generate $160 billion in revenue. Its platform is increasingly becoming integral to the home-buying process. It has several paths to monetization with the juiciest being selling homes.
Another interesting development is that Zillow's stock is heavily shorted as 21% of its float is sold short. Since the stock is at an all-time high, it means that these shorts are sitting on losses. This could provide the fuel for further upside if it remains at current levels or keeps rising.
Zillow is in the midst of two bull markets - Internet stocks and real estate. The Internet is increasingly becoming a greater share of economic activity, while real estate is in the midst of a bull market that seems likely to persist for another decade given the Millennial demographic bulge and low housing supply.
The coronavirus was a catalyst for the housing market, leading to a surge in demand. It's also been a catalyst for Internet stocks as so many options for spending were shut down. Zillow was able to take advantage as people could no longer visit homes with a real estate agent or go to open houses. Instead, they were taking virtual tours online and browsing the website. Already, this is how younger people were looking for homes, but it accelerated their growth timeline in the same way that many Internet stocks reported realizing growth targets for future years in one quarter.
Given these trends and the stock's relative strength, Zillow is one of the leaders of this bull market. It has multiple avenues for growth. The high short interest is an indication that many people don't believe in its story which is also consistent with previous, market leaders. Traders and investors should look to accumulate on dips.
