Zillow (NASDAQ: Z), an online real estate database company with over 110 million listings, is the largest such site in the U.S. and has seen revenue growth of over 9000% in the last decade.
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With the U.S. real estate market having a $1.9 trillion yearly total addressable market, is Zillow an option for investors looking to get in on the property game?
The bull case for Zillow
Since interest rates were lowered during the pandemic, lower mortgage rates are driving demand for available housing. In addition, according to the National Association of Realtors, supply for housing is 5.5 million units short of meeting demand in the U.S. The combination of these two should ensure Zillow has plenty of demand for its services as it has the technology to capture a healthy portion of the properties and buyers that are on the market.
Although the company saw a 40% decline in visitors at the start of the pandemic, business seems to have returned to normal. In Q1, Zillow posted mortgage revenue of $68 million, up a staggering 169% year-over-year.
Zillow is using its technology to cover every angle of the property journey from mortgages, sales agents, and the rental marketplace. This has allowed Zillow to grow a bigger footprint than any of its traditional rivals.
Zillow Offers is also making great progress. Property sellers proved that they are willing to lose a bit of cash if they are guaranteed speed and safety, which this service provides. In the first quarter, Zillow Offers generated $701 million in revenue.
The real estate company is trying to capture every type of client. Zillow offers a more traditional service to customers who like to keep it old school by connecting buyers with agents in their area and even helps its more tech-savvy clients sell their own property online.
Given Zillow’s $1.2 billion in revenue for the most recent quarter, these digital trends seem to be popular especially with the younger generation making the stock an interesting considering for investors.
The bear case for Zillow
The biggest threat to Zillow’s revenue is a recession or a downturn in the real estate market, in which case the company could be left holding a lot of real estate without buyers.
Zillow also reported a net loss of over $144 million, $58 million of which came from the Homes segment. This is because the company loses over $6,000 on each house it flips, on average.
Another concern is climate change, which contributes to hurricanes and wildfires. These catastrophes cost billions of dollars in damage to real estate and combined with a downturn or recession, can spell major disaster for Zillow.
So, is Zillow stock a good watch?
Zillow management feels that they’re slowly finding their groove as they overcome a number of growing pains associated with the sector. With solid revenue growth, popular products, and a booming real estate market, this disruptive stock is definitely one to watch.
Quickfire Round
1. Who is the CEO of Zillow?
Rich Barton, one of the founders.
2. Does Zillow pay dividends?
No.
3. What does it cost to list on Zillow?
Nothing for FSBO listings. Rental and property managers are charged varying fees.
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