⬇️ My quick take on $ZG ⬇️
Background:
$ZG is a digital real estate company that provides information about homes, real estate listings, and mortgages through their website and mobile applications. The company is focused on making it easier for customers to buy, sell, rent and finance residential real estate in the U.S. Trading at ~$87 per share (Oct. 4), I think $ZG is a technologically disruptive stock with high growth outlook and profitability for the long term.
The business operates into three segments: Homes, IMT (Internet, Media, and Technology), and Mortgages. In Q2 2021, $ZG 's total revenue rose 70% YoY with the Homes segment up 71%, IMT up 70%, and Mortgages up 67%. The Homes segment revenue increase 99% from $52.3 M in 2018 to $1.35 B the month ending 2019, mostly attributed to Zillow Offers, $ZG 's homebuying program. iBuyers aren't in every U.S. market, but are expanding rapidly (already in 33 main cities nationwide). In the near term, there will be narrow total EBITDA margins, but in the long term, Zillow Offers should have one of the highest margin segments for the company.
Positives:
📈Q2 2021: 2.9B visits, 229M average monthly unique visits, >135M houses in living database
👀$ZG is the most trusted brand in the real estate industry. There's great brand recognition, as "Zillow" is searched more than "real estate" according to Google Trends and has a net promoter score of 61 (Google search trends validate the upward trajectory of digital home searches). Large audience and brand trust keeps customer aquisition costs low.
💻Inimintable living database of homes and data science and technology advantages: $ZG has a database of over 100M U.S. homes, which results from 14 years of analysis and data aggregation of property, transaction and listing data → foundation to Zestimate, Rent Zestimate, Zestimate Forecast and Zillow Home Value. Zestimate, $ZG 's patented proprietary automated valuation model which provides real-time home value estimates has a median percent error = 1.9% for homes listed for sale and 7.7% for off-market homes
🤝Superior industry partnerships - $ZG maintains strong partnerships with leading real estate agents, brokers, mortgage professionals, preperty managers, landlords, home builders, and regional listing services.
Risks and Uncertainty:
📉Stock price is down 22% for the past year
🏁Strong competitors such as $RDFN and $OPEN are also trying to disrupt the industry and compete for market share
🦠The COVID-19 pandemic has had an impact on $ZG and will continue to depending on the pandemic's magnitude, duration, and severity, as well as the actions taken by governments, businesses, and individuals in response to the pandemic, as well as the availability and widespread distribution and use of effective vaccines.
🏚️The health of the U.S. residential real estate industry, as well as downturns in the industry and general economic conditions, may have a negative impact on $ZG and its operating results (cyclical stock).
Total Addressable Market (TAM):
- $ZG 's TAM expanded from $19 B in U.S. real estate related advertising to $1.9 trillion of annual home sales in the largest asset class in the country (buying and selling homes through Zillow Offers, as well as Zillow-reffered transactions facilitated by Premier Agent Partners)
- Rentals marketplaces participates in a nearly $45 billion annual property management services industry
- $ZG 's is considering additional opportunities in the future, which include home insurance ($99 billion TAM), home warranties ($2.5 billion TAM), home renovation services ($354 billion), and moving services ($18 billion TAM)
Expectations and Ratings:
- Earnings vs Market: Earnings (69.4% per year) are forecast to grow faster than the US market (15.1% per year)
- High Growth Earnings: Earnings are expected to grow significantly over the next 3 years
- High Growth Revenue: Revenue (32.9% per year) is forecast to grow faster than 20% per year
- Analysts predict a revenue CAGR of 43% in the next 5 years and 35% in the following 8. These estimates show that the present market price is undervalued.
- Based on analysts offering 12 month price targets for $ZG currently. The PT is $161 with a high estimate of $217 and a low estimate of $100
- 15 buys, 4 hold, 2 sells (Bloomberg)
Closing thoughts:
Since investors have been bearish on real estate stocks partly due to the market's overvaluation, it might be a good idea to look into technologically disruptive stocks with high growth outlook and profitability for the long term (such as $ZG ). Lots of people don't want to get into housing stocks at the peak of the housing market (since there is a high level of excitement). However, the housing market should stay strong above historical trends, and investors aren't taking this into consideration. Digital disrupters are going to play a role in the long term, and $ZG may be a great pick for the future.
Should investors take advantage of the huge dip and buy? What are your thoughts about the real estate industry and $ZG for the near and long term?
#quicktake #longterm
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