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Zillow is disrupting real estate — how is its share price moving?

The Zillow [Z] share price has struggled for momentum in 2021, down 32.1% in the year-to-date to $88.14 at the close on 30 September. It is also down 14.9% in the last 52 weeks. The stock is trading 3.4% above its 52-week low of $85.24, set during trading on 30 October 2020, but 57.6% below its all-time high of $208.11, recorded on 16 February.

The movement of the Zillow share price is at odds with the rest of the sector. The Hoya Capital Housing ETF [HOMZ], which holds Zillow, has returned 22.7% year-to-date and 33.97% in the last 52 weeks.

In the quarter ended June 2021, Zillow’s revenue grew by 70% year-over-year to $1.31bn. Its net income was $9.64m versus a loss of $84.45m in Q2 2020, while EBITDA was $182.77m versus $15.84m.

Zillow has been reducing its long-term debt over the last few quarters, and although this figure stood at $1.28bn at the end of June, the company had shareholder equity of $5.64bn, translating to a low debt-to-equity ratio of 0.23.

However, as of 30 September, Zillow was trading at a high multiple – 147.15 times its trailing-12-month earnings and 78.7 times estimated fiscal year 2021 earnings.

 

 

How is Zillow disrupting real estate?

​​On the Q2 2021 earnings call, Rich Barton, CEO and founder of Zillow, said the brand had become “synonymous with real estate empowerment”. But the company felt that the moving process was still “resisting the gravity of digitisation”.

Having started out as a one-stop online shop for the industry, Zillow’s focus has “moved from the top of the consumer funnel down to the bottom to the transaction itself”. The dream, added Barton, is to re-engineer and streamline the moving process

The bulk of Q2 2021 revenue was earned through its homes segment — its iBuyer programme, Zillow Offers, buys homes from customers and sells them to third parties. Agent advertising was another important revenue stream. 

Zillow purchased 3,805 homes in three months to the end of June and sold 2,086.

Rival iBuyer service provider Opendoor [OPEN], meanwhile, acquired a record 8,494 homes in its second quarter and sold 3,481.

Homeowners used iBuying services to sell more than 15,000 homes in the three months to the end of June, according to Zillow research. This pushed the iBuyer market share to more than 1% of the total number of US homes sold in Q2 2021. The iBuyer market share looks set only to grow from here.

Back in February, a couple of weeks before the Zillow share price peaked at its all-time high, analysts at Loup Ventures released a report indicating that Zillow was “well-positioned to triple over the next five years”.

Their argument is that companies like Zillow are at the forefront of reinventing the home-buying and selling process. They predicted iBuying will account for around 10% of transactions by 2030.

The analysts also highlighted how digital platforms and online marketplaces appeal to Millennials and Generation Z — the next generation of home buyers.

 

Will a house price rise be a headwind for Zillow’s share price?

In the near-term, economists expect house prices to rise. Research published by Zillow has forecast the average value of a home in the US to increase by 4.7% in the three months to November and to end the 12-month period to the end of August 2022 up 11.7%.

According to the research: “Slowing monthly appreciation is not expected to be echoed in slower annual growth until early 2022, with year-over-year growth… expected to end 2021 up 19.9% from the end of 2020 and continue accelerating to 20.1% in January 2022 before beginning to slow down.”

“The market today is very competitive and bidding wars are common in many areas of the country. With inventory trending up, waiting to buy could mean a more balanced market between buyers and sellers” - Nicole Bachaud, economic data analyst at Zillow

 

Nicole Bachaud, economic data analyst at Zillow, told HousingWire: “The market today is very competitive and bidding wars are common in many areas of the country. With inventory trending up, waiting to buy could mean a more balanced market between buyers and sellers.”

The current situation could see some people put their house moves on hold, which could potentially lead to a slowdown in sales.

While analysts expect Zillow’s Q3 and Q4 revenue to balloon by 200% and 154.8% year-over-year, according to Zacks data, the growth rate for FY22 is expected to be a more modest 44%.

 

How do analysts rate Zillow’s share price?

MarketBeat data shows Zillow has nine ratings: four buys and five holds. The consensus price target is $163.71, which is an 80.9% upside from the stock’s 27 September closing share price.

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