Zillow’s Performance Levels Off
Zillow Group, Inc. (Z) stock plateaued after experiencing ups and downs transitioning into 2021. The real estate-focused media company could not maintain the record highs of early February 2021 yet still outpaces the S&P 500. Hedge funds were buying as Zillow outperformed the S&P 500, rising by approximately 105.1% compared to the S&P’s gain of about 37.7% since the start of 2020.
Zillow operates an online real estate marketplace with mobile and website applications. It generates revenue by selling advertisements to property management companies and real estate agents who place listings on their network. Zillow has a portfolio of brands, products, and services to provide real estate information and connect prospective buyers with real estate professionals and lenders. Zillow also sells advertising space to other businesses such as home organizers, insurance agents, and general contractors. Many homeowners are drawn to the Zillow.com website for its simple property valuation tool that provides a “Zestimate” of a house’s value; these Zestimates bring views in to see the advertisements and may also result in Zillow making an offer on a home. One of Zillow’s other related services is an iBuying program called Zillow Offers that allows the company to make real estate investments such as buying, fixing up, and reselling houses for a profit.
Hedge Funds and Institutions Are Buying
In the second quarter, aggregate 13F shares held by hedge funds increased to about 101.7 million from 99.3 million, an increase of approximately 2.4%. Hedge funds created 22 new positions, 60 added to an existing one, 36 exited, and 53 reduced their stakes. Institutions are also buying the stock, and aggregate holdings increased by about 1.6% to approximately 196.7 million from 193.7 million.
Analysts estimate that year-over-year increases will bring earnings to $1.29 per share by December 2022, up from December 2021’s predicted $1.05 in earnings. Revenue estimates are also encouraging, forecasting approximately $6.6 billion by December 2021 and rising to about $9.9 billion by December 2022. The 13F metrics between 2015 and 2021 reflect Zillow’s rising stock value with a peak in early 2021.
Mixed Actions by Analysts
While Zillow saw growth through 2020 into the start of 2021, drops in the stock’s price factored into mixed analysts’ feedback. For some analysts, earnings were not strong enough to justify higher ratings and price targets. Brian Nowak from Morgan Stanley lowered the firm’s price target on Zillow to $153 from $155, maintaining an Equal Weight rating on the shares. Nowak shared optimistic revenue estimates but still sees Zillow’s iBuying business segment as continuing to “re-rate lower.” Piper Sandler analyst Thomas Champion noted the strong home sales market and kept an Overweight rating on Zillow’s stock. Meanwhile, Zelman & Associates upgraded Zillow to a Buy following a recent decline in value and after previously downgraded its stock rating to Neutral.
Better Days on the Horizon
Though Zillow’s stock value has fallen since February 2021, it continues to outperform the S&P 500. The U.S. housing market has seen soaring prices and high demand for inventory over the past year, offering continuing opportunities for Zillow’s business model. Zillow’s real estate marketplace has the potential to continue to see growth in parallel to the housing market. Analysts’ earnings predictions and the stock’s currently lower value may be attractive for long-term investors.