Is this digital real estate play a buy?

It’s time to explore a digital real estate play. Here is the break down of $Z, otherwise known as Zillow Group.

Current Price: $97.51

52/Wk High: $208.11

52/Wk Low: $79.08

Market Cap: $18.1 Billion

3 Month Performance: -13.36%

Read below for the break down!

Zillow ($Z) is the leading real estate website in the United States that was launched in 2006 and boasts an all-in-one digital platform that provides buyers, sellers, and renters with the proper solutions to find, sell, or finance a home.

Furthermore, Zillow Group maintains multiple segments and brands including; Zillow Premier Agent, Zillow Offers, Zillow Rentals, Zillow HomeLoans, Zillow ClosingServices, trulia, StreetEasy, and hotpads.

Digging into several of the segments, Zillow Premier Agent connects agents with active buyers and sellers to assist business growth. Simply put, the Premier Agent segment allows agents to advertise within the Zillow ecosystem and gain potential clients.

Shifting into Zillow Offers, the segment provides users with a simple method to sell their homes. The segment allows users to request a cash offer for their home directly from Zillow Group, bypassing the listing and selling process while controlling their timeline. This segment’s core feature is often referred to as iBuyer.

Moving into rentals, Zillow Rentals and Zillow Rental Manager cover the industry subcategory. Zillow Rentals allows users to search for and find rental properties while Zillow Rental Manager provides landlords with a more efficient method to fill vacancies and manage properties.

Finally, Zillow Home Loans is an affiliate lender of the Zillow group that provides customers with the ability to get pre-approved and lock in financing for the purchase of a home.

Last but not least Zillow ClosingServices assists buyers and sellers with their transactions, offering title services and closing services.

Zillow Group is led by co-founder and CEO Rich Barton, who co-founded the company in 2005. Barton has a history in the digital space as he also founded Expedia and Glassdoor throughout his long career. On a final note, Barton maintains participation on the boards of Netflix, Artsy, and Qurate.

The rest of the management team is made of leaders boasting experience from the likes of Expedia, Microsoft, Pure Networks, PicturelQ, Nissan, Tilray, Ford, AthenaHealth, Clover Health, and more.

In recent news, major investors and Wall Street experts are warming up to the company’s stock. For example, in a recent CNBC interview, Ritholtz Wealth Management’s Josh Brown (@ReformedBroker) noted that he recently initiated a position in the name.

“iBuyer is a bigger business that could eventually take over this whole company. The business has the potential to be explosive when you consider how much people hate the process of selling a house. They are not the only player doing it, but they are the biggest and can be the best,” Brown said.

Digging into the numbers Zillow beat Q2 2021 expectations with an EPS of $0.44, better than the analyst’s EPS consensus estimate of $0.24. On a year-over-year basis, EPS improved by 358.82%.

Shifting into revenues, revenue totaled $1.3 billion in Q2 2021, representing a strong 70% improvement year-over-year. Do note, revenue totaled $768.352 million in Q2 of 2020.

Breaking down revenue, the Homes segment delivered $777.145 million in revenue throughout the quarter, representing a 71% jump on a year-over-year basis.

The IMT segment continued to deliver as well, with revenue totaling $476.090 million in Q2, representing an increase of 70% year-over-year.

Rounding out revenues, Mortgage segment revenues accelerated by 68% year-over-year to a strong $56.745 million compared to the Q2 2020 level of $33.761 million.

Rotating into gross profit, Zillow reported $538.395 million in gross profit throughout the quarter, representing a strong improvement over the Q2 2020 gross profit level of $280.869 million. On a year-over-year basis, gross profit improved by 92% year-over-year.

Shifting into income, Net Income totaled $9.641 million in Q2, representing a sizable improvement over the same time 2020 level of $-84.448 million.

Breaking down income by segment the Homes segment continued to run a loss, with segment income totaling $-59.346 million. On the flip side, the segment’s loss did improve from a larger $-80.058 million loss in Q2 of 2020.

Furthermore, the IMT segment delivered $133.573 million in net income, representing an improvement over the Q2 2020 net income level of $19.166 million.

Finally, the Mortgages segment delivered a $-17.685 million loss and Corporate items contributed $-33.591 million. On a year-over-year basis, Corporate item costs increased while income within the Mortgages segment improved.

Looking to Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), total adjusted EBITDA landed at $182.774 million in Q2, representing a mammoth improvement over the same time 2020 level of $15.839 million.

Flipping into platform metrics, average monthly unique users totaled 229 million users in Q2, representing 5% expansion on a year-over-year basis.

Finally, Zillow has seen continued improvements in the number of homes sold to and by the company. In Q2, 3,805 homes were sold to Zillow, representing a sizable improvement over the Q1 2020 level of 1,856 homes.

Furthermore, Zillow sold 2,086 homes in Q2, representing a minimal improvement over the Q1 2020 level of 1,965 homes.

Leadership was upbeat.

“Zillow is making rapid and significant progress toward building a seamless, integrated real estate experience for our customers and partners,” CEO Rich Barton said.

Management is bullish when looking to the future, expecting Q3 revenues to land within a range of $1.927 billion to $2.047 billion. Furthermore, the company is guiding total adjusted EBITDA to land within a range of $94 million to $126 million.

Shifting into the balance sheet the numbers are solid.

Total Debt: $2.594 Billion

Total Liabilities: $3.131 Billion

Total Assets: $8.775 Billion

Cash & Short Term Inv: $4.594 Billion

Total Inventory: $1.170 Billion

On a valuation basis, Zillow does trade at a premium.

Price to Earnings: 425.81x

Forward Price to Earnings: 87.06x

Price to Sales: 4.42x

Price to Book: 4.38x

Management has been effective.

Return on Equity: 3.05%

Return on Assets: 1.93%

Return on Invested Capital: 2.23%

Given the numbers, the analysts are bullish with a mean price target of $139.00/share, representing a 42.55% upside.

The high price target is $153.00/share, representing a 56.91% gain, while the low price target is $125.00/share, representing a 28.19% upside.

The big money is quite involved with 86.19% of Zillow being owned by institutions. Top holders include Caledonia Investments, The Vanguard Group, and ARK Investment Management.

On a technical basis, Zillow could be presenting an opportunity. According to the six-month charts, the MACD is moving with extremely minimal upside momentum within a tight range around -4.01.

The six-month charts are also indicating an RSI of 42.32 and CCI of -38.0072, both of which are on the low end. Zillow has been in a strong downtrend since mid-February, down over 50% from its highs.

Exploring investor psychology the bears believe a low supply, high-cost real estate market coupled with sizable competitors will harm Zillow.

Meanwhile, bulls believe the future is digital and that a large portion of the real estate market will continue the digital shift and use Zillow, the leading platform, as their go-to digital real estate platform.

In short, Zillow ($Z) is a strong long-term digital real estate play with expanding revenues, a growing user base, a reliable management team, a solid balance sheet, and a cutting-edge platform.

EAT - SLEEP - PROFIT

Disclaimer: This is not direct financial advice, simply an opinion based on independent research.