Zillow Group
Initially, shares opened higher but investors took profits. Overall, Zillow shares are down by more than 50% from their peak earlier this year. However, the company continues to exhibit strong momentum in terms of user growth, and more transactions are taking place on its platform. It is also facing increased competition from OpenDoor
Inside the Numbers
In Q2, Zillow reported earnings per share of $0.44 which exceeded estimates of $0.24 per share. Revenue came in at $1.31 billion which was above estimates of $1.28 billion. To compare, during last year's Q2, Zillow had revenue of $768 million and a loss of $0.17 per share.
Zillow has two major units - Internet, Media & Technology (IMT) and Premier Agent. IMT is essentially Zillow's consumer-facing portal which is a directory of real estate information. Premier Agents is its premium features for real estate agents. In Q2, IMT generated $476 million in revenue, an increase from $280 million last year. Premier Agents generated $348.8 million in revenue, a sharp increase from $192 million last year. Both figures were also slightly above estimates.
However, the company seems most optimistic about the potential of its newest endeavor - Zillow Offers which buys and sells homes and mortgages. This segment generated revenue of $777.1 million, an increase from $454.3 million last year, while Mortgages had revenue of $56.7 million, up from $33.8 million last year.
In Q3, the company expects revenue between $1.93 billion and $2.05 billion. This was significantly better than estimates of $1.45 billion. The largest contributor to this increase in guidance is that the company anticipates more growth for Zillow Offers. The company believes that it has made strides in terms of its pricing model and in automating parts of the process that should result in increased scale.
While the company topped in terms of revenue growth, it missed estimates on the bottom-line as it predicted adjusted Ebitda of $94 million to $126 million which is a decrease from $183 million in Q2. The company attributes this to higher costs as it increases hiring, upgrades its technology, and spends more on sales and marketing.
Stock Price Outlook
Real estate tech stocks were one of the hottest parts of the market from March 2020 to February 2021 until there was a correction in growth stocks. Now, while many parts of the market have recovered, this sector remains quite weak.
Given the sector's long-term appeal, the inevitable disruption of real estate by tech, and the housing bull market, these stocks should be bought on weakness for investors who believe in the long-term story.
