Zillow Group Inc (NASDAQ: Z) – A Transitioning Year


Zillow Group Inc



Zillow will be releasing their earnings on May 6th, 2015. In the last 90 days the stock has experienced tremendous volatility, rattling long term investors.  The volatility peaked on April 14th when the stock gapped down 10% and then quickly rallied over 12% intraday. Earlier in the year on February 18th shares rose 10% intraday from $109 to $133. Despite the 60% swing from year to date highs to lows, the pricing of Zillow currently offers an excellent risk to reward ratio as the stock begins to move back towards the 200 day moving average.

A Year of Transition

In April shares were down after Spencer Rascoff, CEO, announced that 2015 would be a year of transition for Zillow after its recent acquisition of Trulia. This move was in sharp contrast to the rise in February after the company announced the completion of the $2.5 billion acquisition of Trulia. On February 18th the company released earnings and had a conference call. During the call they announced an earnings per share miss due to the acquisition but a beat on revenue. The revenue was 58% higher than the same quarter in 2014. In the days after the merger was completed shares of Zillow began to sell off. This sell off was fueled by Rascoff stating the company expects 2015 revenue to fall short of analysts’ expectations by over $50 million. Earnings for May are expected to be a continue a loss in per share profit. Again, this will likely be attributed to the Trulia acquisition. “According to Zacks Investment Research, based on 4 analysts’ forecasts, the consensus EPS forecast for the quarter is $-0.38. The reported EPS for the same quarter last year was $-0.16.”. So while 2015 is a year of transition for Zillow, it is also setting the foundation for long term growth.

Building a Foundation for Growth

With the merger of Zillow and Trulia, Zillow has a strong hold on the online real-estate market. There are some competitors in the space but Zillow maintains a strategic advantage. With more and more home owners and home buyers using the MLS, Zillow provides a platform that offers detailed features including maps, pictures, school districts, crime statistics, and property taxes rates, to name a few. Users of Zillow are able to customize their experience by removing properties that don’t interest them and saving properties they like for future updates. There is no other platform that offers the level of customization, search filtering, and property data as Zillow. This positions Zillow to continue to dominate the online MLS real-estate space for the foreseeable future.



The Housing Market Impact

At this point the housing market will have little impact on the value or strength of Zillow. Unlike home building companies, a weakened housing market does not correlate to a significant reduction in market listings, which include foreclosures and short sales, or traffic to MLS sites. Zillow has the advantage of being able to cross into multiple sectors of the market with a user forum that taps into social media.  In an effort to include a social component, Zillow has an interactive column where home owners can discuss popular neighborhoods, schools, and common concerns.  The addition of providing rental properties and rental advertising adds to Zillow’s offering. The company’s ability to diversify its offering adds significant value. I will be watching Zillow for buying opportunities.


Full Disclosure: I currently own no position in Zillow.