Why did zillow stock drop

Why did zillow stock drop DEFAULT

Why Zillow Stock Is Down 20% In 2021 In The Middle Of A Housing Boom

Historically low interest rates have created a boom in the U.S. housing market in 2021. Unfortunately, shares of real estate sales platform Zillow Group Inc (NYSE:Z) are down 22.4% year-to-date, a frustrating trend for Zillow investors.

A Wealth of Common Sense's Ben Carlson recently took a deeper look at what is going on with Zillow’s stock, which may seem puzzling at first glance.

Related Link: Why Low Mortgage Rates May Be The Best Long-Term Pandemic Silver Lining

Zillow’s Underperformance: Zillow’s underperformance is even more curious compared to the gains in Lennar Corporation (NYSE:LEN), Invitation Homes Inc (NYSE:INVH), Toll Brothers Inc (NYSE:TOL) and other housing stocks this year. Each of those three stocks are up more than 30% year-to-date.

Earlier this year, existing home sales hit their highest levels since the housing bubble of 2007. Zillow reported 70.4% revenue growth and 111.4% net income growth in the most recent quarter, so the housing boom is certainly having an impact on Zillow’s business.

When a company like Zillow is performing so well in such a hot market and the stock is lagging, Calrson said the next place investors should always look is the stock’s valuation. The stock market is forward-looking, meaning the boom in the housing market may have already been priced into Zillow’s share price long ago. At the same time, investors may already be discounting Zillow’s recent performance because the market is already pricing in an inevitable future decline in housing sales.

Look To The Valuation: Carlson took a look at Zillow’s historical price-to-sales ratio, which seems to explain some of the problem. Despite the recent boom in Zillow’s sales, its 7.6 PS ratio is still currently above its five-year average of 6.8.

It appears the stock already priced in the last year's housing market boom. In fact, Zillow’s share price was up 182% in 2020, a move that sent its PS ratio up above 13 in early 2021, more than double its long-term average.

While low interest rates typically do lead to higher broad market valuations, Carlson said a 13x PS ratio is a bit tough for investors to swallow even during a housing market boom.

“Maybe this was a case where investors got overly excited and ran the price well beyond the zone of rationality,” Carlson said.

Plenty of other stocks that have skyrocketed from their March 2020 lows only to underperform in 2021, he said. It doesn’t necessarily mean there is something wrong with the stock or the underlying company. It may simply be a case of reversion to the stock’s longer-term historical valuation.

Benzinga’s Take: Stock price, earnings, revenue and other quantifiable fundamental metrics grow over time and can continue growing indefinitely. However, valuation ratios, such as earnings and sales ratios, should theoretically remain relatively stable over time, even as a company’s business grows.

Photo: the Zillow platform. 

Sours: https://www.benzinga.com/analyst-ratings/analyst-color/21/08/22429197/why-zillow-stock-is-down-20-in-2021-in-the-middle-of-a-housing-boom

Why Zillow Stock Fell 23% in March

It wasn't just the wider tech stock sell-off that pressured Zillow's shares last month.

What happened

Zillow Group (NASDAQ:Z)(NASDAQ:ZG) shareholders trailed the market by a wide margin last month. Their stock dropped 23% in March compared to a 4.2% increase in the S&P 500, according to data provided by S&P Global Market Intelligence.

The drop pushed shares to near flat for the year but the real estate selling platform stock has still more than tripled over the last 12 months.

An older woman checks her phone while on a laptop.

Image source: Getty Images.

So what

That earlier rally was likely the cause of some of the selling pressure on Zillow last month, especially when many of its peers were part of a wider tech stock sell-off. Other industry-specific factors contributed to Zillow's March decline, including rising interest rates and a poorly received earnings report from peer Opendoor Technologies. Opendoor in early March revealed slowing growth due to the declining supply of homes in its inventory.

Now what

Zillow's broader selling platform should allow it to continue capitalizing on its popular home shopping app, which last quarter notched a 27% traffic spike. But the stock might still be subject to extra volatility ahead of its next earnings report, likely due out in the first week of May.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


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Sours: https://www.fool.com/investing/2021/04/07/why-zillow-stock-fell-23-in-march/
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Why Did Zillow Split Its Stock?

Shares of Zillow Group (Z, ZG) split in 2015, fulfilling the promise of the real estate portal made to create new classes of shares that give it access to new revenues while also providing a vehicle for further investment. 

Zillow created a non-voting Class C stock that was divvied up between its Class A and B shareholders, who got two shares each of the new stock for each share they owned. The C shares trade under the old "Z" ticker on the Nasdaq exchange, while the A shares now trade as ZG. The company wants to use the new stock to make acquisitions and compensate executives.

Key Takeaways

  • Zillow underwent a stock split in 2015 while generating new share classes and now trades under the tickers Z and ZG.
  • Z is for the new class of non-voting stock, C shares, while the A shares trade under the symbol ZG. 
  • Stock splits often have to do more with financial engineering than with company fundamentals.
  • Many tech companies are forming new share classes, such as Google, to help fund stock-based acquisitions without diluting voting rights.

The Impact of Stock Splits

Stock splits are pieces of financial engineering that often have little impact on a company's bottom line, and splits do not technically impact shareholder wealth.

Recall that Google underwent a similar stock split in 2014. The company now trades under the tickers GOOG and GOOGL to represent the two classes of shares. The idea is that these technology companies, such as Zillow and Google, can use these share classes for stock-based acquisitions and compensation plans.

Putting the Stock Split to Work

In 2015, Zillow closed on its $3.5 billion acquisition of rival Trulia. The integration of software between the retail ends of the two businesses and the industry-facing ones is seen as the greatest challenge, even by management.

The stock split changes none of that, other than providing Zillow with the means to conduct more such transactions, meaning investors should concern themselves with whether they think the real estate portal can make good on its growth promises. However, Zillow hasn’t been active in making major acquisitions since the buyout.

Since the debut, Z and ZG shares have risen a stunning 500% as of March 2021, while the S&P 500 is up just around 100% over the same period.

The Bottom Line

Granted, Zillow’s revenues have steadily increased since the stock split, growing 5.5x from around $600 million in 2016 to more than $3.3 billion for year-end 2020. However, its earnings have continued to dwindle, with the company generating a net loss of $162 million for fiscal year 2020.

However, on the bright side, Zillow is looking to innovate, having rolled out a home loan service and virtual home tours in the wake of the 2020 crisis. The web-based real estate company has also waded into home flipping, which has received mixed emotions among investors and Wall Street. 

Sours: https://www.investopedia.com/stock-analysis/082515/zillow-splits-its-stock-what-now-investors-zg.aspx
Home Prices DROPPING in 10 CITIES

Why Zillow Stock Is Down Almost 50% From Its Highs

Buying or selling a house can be a long, layered, and exhausting process, involving multiple parties. Disrupting the status quo would involve playing the roles of a real estate agent, mortgage lender, and even lawyer. Zillow (NASDAQ:ZG)(NASDAQ:Z) is using technology and a high-volume, mass-market business model to help simplify the process for consumers on either side of the deal. 

A physical presence is typically required during several points of the homebuying process. Since Zillow is a technology company digitizing many of these aspects, investors were heavy buyers of its stock during the pandemic, driving it up as much as 660% from the low point set in March 2020. However, the stock price is now cooling off significantly, losing nearly 50% of its value since hitting record highs in mid-February.

The loss can be summed up as the company not quite delivering earnings strong enough to justify its valuation.

Two people shaking hands over house documents.

Image source: Getty Images.

Zillow is trying to cover all angles

Zillow isn't a one-trick tech company. It's a group of nine brands threaded through all the moving parts of the residential property business -- sales agents, a rental marketplace, broking services, and even home lending. The goal: a one-stop-shop for all things real estate, volume-focused and based online.

The Zillow Offers segment, which directly buys homes from customers and then sells them to a third party, is the biggest part of the business. While it sounds like a mammoth task, it's a simple way to offer a standardized service to both buyers and sellers, removing some of the noise from the sales process. A mountain of data is needed to manage this profitably, with the company's database now filled with information on over 135 million homes. It uses that to create predictive pricing models and generate well-reasoned offers when a customer inquires about selling their house to Zillow. 

Zillow Offers accounted for 59% of the company's $1.2 billion of revenue in Q1 2020. The company sold 1,965 houses and made an average gross profit of $17,634 per unit -- though it did lose money on a net basis. Zillow Offers was followed by the internet and technology segment, which is the most profitable, accounting for 47% of adjusted EBITDA. 

The home lending segment, Zillow Home Loans, is the smallest but fastest-growing contributor with $68 million in revenue -- a 169% jump year over year. 

Zillow has a valuation conundrum

It appears investors expected Zillow to deliver significantly more earnings in 2020, given that the stay-at-home economy offered an opportunity for online businesses to thrive. 

Metric

Q2 2020

Q3 2020

Q4 2020

Q1 2021

TTM Total

Earnings per share

$(0.17)

$0.37

$0.41

$0.44

$1.05

TTM= Trailing 12 months. Data source: Company filings. 

With the stock priced at about $106 a share, it trades at a whopping 101 times trailing-12-month earnings, making it one of the more expensive technology companies by valuation on the market. By comparison, Amazon trades at 61 times the same metric, and it is far more profitable than Zillow. 

As the economy reopens, it appears consumers are falling back into old habits, and the company doesn't project much growth in the second quarter of 2021. It expects just 3% to 7% more revenue compared to Q1, which probably isn't enough to maintain its lofty valuation over the long term. 

A group of 14 analysts aren't overly bullish on earnings either, with the average full-year 2021 earnings estimate sitting at $1.02 per share, according to Yahoo! Finance. The highest estimate is $1.36 per share, which means the company would still have a multiple of 78 times earnings, assuming the share price remains where it currently is.

However, the consensus 2022 earnings estimate is $1.44 per share, representing roughly 40% growth -- that could be strong enough for the stock to maintain today's price, as investors might project that growth rate several years into the future. However, it means share price appreciation might be lacking for now, until 2022 comes around. 

Zillow has a disruptive business with an incredible amount of potential. It has built synergies across its brands that could one day bear enormous fruit. It's still in its early life as a public company, yet has managed to deliver consecutive profitable quarters, something many tech companies struggle to do. Investors should watch earnings growth closely, as the bottom line will be the key driver of the stock's performance at this valuation. If Zillow can grow faster than analyst estimates -- which Q1 results suggest it might -- then the recent near-50% decline might represent good value. 

Sours: https://www.fool.com/investing/2021/05/19/why-zillow-stock-down-almost-50-from-its-highs/

Zillow why stock drop did

Why Zillow Stock Is Down 20% In 2021 In The Middle Of A Housing Boom

Historically low interest rates have created a boom in the U.S. housing market in 2021. Unfortunately, shares of real estate sales platform Zillow Group Inc (NYSE:Z) are down 22.4% year-to-date, a frustrating trend for Zillow investors.

A Wealth of Common Sense's Ben Carlson recently took a deeper look at what is going on with Zillow’s stock, which may seem puzzling at first glance.

Related Link: Why Low Mortgage Rates May Be The Best Long-Term Pandemic Silver Lining

Zillow’s Underperformance: Zillow’s underperformance is even more curious compared to the gains in Lennar Corporation (NYSE:LEN), Invitation Homes Inc (NYSE:INVH), Toll Brothers Inc (NYSE:TOL) and other housing stocks this year. Each of those three stocks are up more than 30% year-to-date.

Earlier this year, existing home sales hit their highest levels since the housing bubble of 2007. Zillow reported 70.4% revenue growth and 111.4% net income growth in the most recent quarter, so the housing boom is certainly having an impact on Zillow’s business.

When a company like Zillow is performing so well in such a hot market and the stock is lagging, Calrson said the next place investors should always look is the stock’s valuation. The stock market is forward-looking, meaning the boom in the housing market may have already been priced into Zillow’s share price long ago. At the same time, investors may already be discounting Zillow’s recent performance because the market is already pricing in an inevitable future decline in housing sales.

Look To The Valuation: Carlson took a look at Zillow’s historical price-to-sales ratio, which seems to explain some of the problem. Despite the recent boom in Zillow’s sales, its 7.6 PS ratio is still currently above its five-year average of 6.8.

It appears the stock already priced in the last year's housing market boom. In fact, Zillow’s share price was up 182% in 2020, a move that sent its PS ratio up above 13 in early 2021, more than double its long-term average.

While low interest rates typically do lead to higher broad market valuations, Carlson said a 13x PS ratio is a bit tough for investors to swallow even during a housing market boom.

“Maybe this was a case where investors got overly excited and ran the price well beyond the zone of rationality,” Carlson said.

Plenty of other stocks that have skyrocketed from their March 2020 lows only to underperform in 2021, he said. It doesn’t necessarily mean there is something wrong with the stock or the underlying company. It may simply be a case of reversion to the stock’s longer-term historical valuation.

Benzinga’s Take: Stock price, earnings, revenue and other quantifiable fundamental metrics grow over time and can continue growing indefinitely. However, valuation ratios, such as earnings and sales ratios, should theoretically remain relatively stable over time, even as a company’s business grows.

Photo: the Zillow platform. 

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