The Bull Case For Zillow

Zillow (Z), the popular online real estate marketplace company has grown quite substantially in market capitalization over recent quarters, and this trend only continued with the release of its most recent quarterly earnings.

But just how substantial was that growth? Enough to confidently make the bull case for Zillow below.

Zillow EPS Surprise To The Upside

On all important fronts, Zillow’s Q2 financials exceeded the expectations set by analysts in the weeks leading up to the August earnings call.

Where they had predicted Zillow to report an earnings per share (EPS) of around $0.23, Zillow actually saw an EPS of $0.44 per share — a nearly 100% beat compared to estimates. This bodes incredibly well for the online real estate giant, especially in combination with its total revenue.

While this number fell much closer to what the analysts had predicted to see from Zillow in the second quarter of 2021, the online real estate marketplace still managed to exceed expectations with total revenue of $1.31 billion dollars — only about 3.5% higher than what was predicted, but higher nonetheless (especially in comparison to its revenue a year ago, which was about 70% less).

A company’s financials are a clear and obvious indication of its success, and in Zillow’s case, those financials indicate a stock worth feeling bullish over.

Zillow Has An Enormous Real Estate Footprint 

Setting financials aside, another important part of the process of determining whether to feel bullish or bearish on a company’s stock is determining the company’s market share.

While the company initially saw a decline in use by about 40% at the start of the COVID-19 pandemic — when going outside seemed like a risk, not to mention going outside to buy a new house and sell your old one — but those numbers quickly rebounded when it became obvious that the pandemic was actually going to have a positive impact on the housing market.

Today, Zillow has an enormous stronghold on the real estate market. In the first three quarters of 2020 alone, Zillow was responsible for facilitating 25% of all home sales online.

While app Opendoor (OPEN) still had the greatest market share of all online housing sites in 2020 — also known as the iBuying market — experts believe that Zillow has enough momentum to overtake this market share in the next five years.

Given Zillow’s tendency to outperform what analysts expect, it wouldn’t be surprising to see Zillow reach a dominant position in a shorter timespan. Its footprint on the real estate market is unmatched, and while Opendoor still had control in 2020, the writing’s on the wall: its days at the top are numbered.

The Growth of Zillow Offers

A large part of Zillow’s significant footprint on the housing market comes from its willingness to use technology to help users access every step of the home buying process.

From mortgages to sales to getting in touch with agents to rentals and everything in between, Zillow implements tools at every step of the way to make its site a one-stop shop for owners, renters, and sellers alike.

This is where Zillow Offers comes into play.

In the second quarter of 2021 especially, Zillow Offers grew significantly and became a central component to the bull case for Zillow.

Q2 saw 3,805 homes purchased and 2,086 sold through Zillow Offers, totaling over $777 million dollars for the company through homes alone.

The prioritization of a fast, fair, flexible, and convenient close has made Zillow Offers a must-use tool in the housing market as of late, and these excellent numbers are proof of that. It’s hard not to feel bullish with growth like this.

Zillow and Today’s Burning Hot Housing Market

The housing market is burning hot as of late, but this has some more wary analysts worried about the possibility of a housing bubble and a subsequent burst on the horizon. Zillow doesn’t seem to think this is a credible threat, and the company has the numbers to back it up.

For starters, Zillow has confidence that many companies extending work-from-home policies into 2022 will continue to see more and more people willing to buy a home right now.

Zillow management also feels strongly that continued low interest rates will act as a lure for millennial homebuyers currently entering their prime, which will only continue to bolster the housing market. As long as the housing market stays hot like this, Zillow should continue to exceed expectations.

The Health of Zillow Group Websites

While much of the focus has been on Zillow’s titular website itself, it’s worth noting that Zillow Group is more than just Zillow. There’s also Trulia, StreetEasy, and HotPads, among several other sites, all fitting nicely under the Zillow Group umbrella.

Like the success of Zillow as of late, all the Zillow Group websites have shown considerable health and strength over the last few quarters.

This results in an average of 229 million unique monthly active users, a 5% increase on a year-over-year basis. Zillow Group websites also saw 2.8 billion visits total, which is a 10% increase year-over-year.

Zillow’s Potential for Future Growth

By reporting an EPS of $0.44 per share for Q2, Zillow effectively shattered all expectations for the company’s future growth.

As such, analysts are scrambling to go back to the drawing board to determine what they now think future earnings reports will look like for Zillow. Currently, their predictions reflect analyses done prior to the Q2 earnings call, which means that Q3’s EPS estimate is set at an average of $0.21, and revenue is set at $1.46 billion.

Given the heat of the housing market and the way this fuels the company’s potential for future growth, Zillow will likely top both of these estimates with ease. Now we simply wait for those numbers to be adjusted.

The Bottom Line: What Is the Bull Case for Zillow Stock?

Taking all of these factors into consideration, the bull case for Zillow is crystal clear: the company’s financials far exceeded what was expected, and it wouldn’t be out of the ordinary for Zillow to do it again in the third quarter of 2021.

Additionally, the company has a huge footprint in the real estate market, and a vast number of those who are currently involved in either buying, selling, or renting have likely used or relied on Zillow at some point or another — this is integral to the company’s continued growth, especially with Zillow Offers.

Beyond this, there’s also the health of Zillow Group’s other sites and the company’s potential for continued future growth going forward. It’s clear to see that the signs point toward a stock that has lots of upside opportunity.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.