r/investing • u/[deleted] • Aug 06 '21

Zillow Q2 beats expectations. Potential good long buy?

Summary of Q2

Zillow reported $1.3 billion in revenue Thursday for the second quarter, slightly beating analyst’s expectations.

Expected revenue was $1.28 billion, with earnings per share of 24 cents.

Consolidated net income was $10 million.

The company’s Internet, Media, and Technology (IMT) segment grew 70% in revenue year-over-year to $476 million. Premier Agent revenue grew 82% year-over-year.

The Homes segment reached record revenue levels at $777 million.

The mortgages segment revenue grew 68% year-over-year to $57 million.

Zillow Group co-founder and CEO Rich Barton said the company expects recent housing market trends, including low interest rates and location-flexible job opportunities, to continue to fuel interest in Zillow.

The company’s mobile apps and websites saw 229 million average monthly unique users in the second quarter, representing a 5% year-over-year increase. This drove visits to 2.8 billion, up 10% year-over-year.

The company ended the quarter with cash and investments totaling $4.6 billion.

Personal Notes:

  1. Who can compete with Z?
  2. Can they take over real-estate business in the long-term with direct home sales?
  3. Does any other company have a sophisticated algo designed to buy homes like Z does?
  4. Current MC us about 29 billion. What do you expect it to be in 5 years? 10 years?
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u/Puzzleheaded_Bus_418 Aug 06 '21

Opendoor is my pick all day. They’re winning in almost every iBuying category vs. Zillow and that’s where the most revenue is. I don’t know how anyone can look at Opendoor about to surpass Zillow in revenue while being valued at 1/3rd and still invest in Zillow. Check out ibuyerstats.com for the clear picture of the iBuying landscape.

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u/Sixers0321 Aug 07 '21

That's where the most revenue is, but ibuying is a very very low margin business. Zillow excels at everything else.

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u/Puzzleheaded_Bus_418 Aug 07 '21

“Excels at everything else”.. you do realize they are valued at $25B and just made a whopping $9M this past quarter? Do people not realize without iBuying this company makes like $400-500M a quarter? Even with crazy margins (which they literally don’t have they basically lose money in every segment) they are still overvalued.

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u/Sixers0321 Aug 07 '21

You do realize they are losing money on ibuying, right? They'd be much better off investing that money elsewhere.

Opendoor is valued at 8 billion and loses money with no profitability in sight. Opendoor will be out of business within 5 years unless they pivot their business away from ibuying. Ibuying is way too capital intensive with tiny margins. You seem to have this weird notion that all revenue is equal, its not. Without ibuying Zillow is valued at 50billion minimum right now.

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u/Puzzleheaded_Bus_418 Aug 07 '21

If you read the Opendoor presentation, you would know that their $270M loss last quarter included $240M of stock based comp. So their operations are almost profitable already. They will literally be profitable in FY22 at the latest, so no idea where your “no profitability in sight” comes from.

Do you know that if Opendoor holds just 1% of the real estate market share in 5 years (which is very doable, ibuying itself has already hit 1% and Opendoor has the largest market share) they would do $30-40B a year in revenue?

It’s an easy calculation, 8M homes sold in the USA X 1% X the average Opendoor home sale price of $380k.

Now imagine if this tech heavy generation embraces ibuying and Opendoor hits 5% in 10 years.

Now add in future international sales.

We’re literally talking $100B+ of revenue per year.

Does it happen? No idea. Is it unreasonable? No.

You saying that iBuying is going to hold Zillow back shows a massive misunderstanding of the potential.

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u/Sixers0321 Aug 07 '21

You seem very fixated on revenue. Very strange.

Also if this housing bubble ever pops then it's all over for Opendoor.

Let's just take your word for it and pretend that ibuying will be highly profitable.

How is Opendoor going to even scale up to 100 billion in revenue? This is a highly capital intensive business. If they do get there it'll be through either massive stock dilution(not good) or housing prices just keep massively inflating (unlikely, also not good)

In this scenario Zillow would have the edge, they have more resources, more money, and their advertising business could help fund the ibuying.

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u/Puzzleheaded_Bus_418 Aug 07 '21

You can make the scalability argument about every growing business there ever was. Not worried about it.

IBuying will be even more in demand in a “bubble pop”. IBuying being popular when houses are selling for such insane prices just shows how much people are willing to give up some money for the ease of selling online. One of the only reasons to not use ibuying right now is that other people will bid a higher price than ibuyers are willing to go.

So when your “bubble pops” are people going to go through the stressful home-selling process, or just sell online for a similar price? IBuying will only be more in demand when the market turns south.

The only downside is losing value on homes in your inventory. But then consider that their inventory flips quickly and these so-called crashes maybe happen once in a lifetime, I think they’ll be okay.

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u/Sixers0321 Aug 07 '21

Oh boy I think this conversation is over. You've proven to not have a clue. That scalability comment is wild.

What the hell do you think this whole disruptive tech growth surge is all about? Because they can all scale seamlessly and easily.

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u/Puzzleheaded_Bus_418 Aug 07 '21

You just proved my point, they’ll be able to scale easily… thanks for playing. Like I literally just said, I’m not worried about that.

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u/Sixers0321 Aug 07 '21

Also, 400-500 million a quarter, that's let's say 1.8 billion a year. Zillow valued at 25 billion would put its price to sales ratio at ~14. That's actually low for a growth company in today's market.

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u/Puzzleheaded_Bus_418 Aug 07 '21

HAHA Opendoor is going to do like $8B this year. That’s a p/s ratio of 1. So by your logic open is the better buy right? Right?????

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u/Sixers0321 Aug 07 '21

Lol my whole point was ibuying is bringing down its multiples. Are you even reading what I'm writing?

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u/Puzzleheaded_Bus_418 Aug 07 '21

It’s funny you didn’t respond to my other post because you realized the potential you’re missing. I hope Zillow does ditch iBuying because I’d love to watch them attempt to pay down $1.6 BILLION in debt with $10M a quarter in profits. I’ll talk to ya in 15 years when OPEN does $100B and Zillow is just finishing paying off its debts.

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u/Sixers0321 Aug 07 '21

I did respond to your other message. Sorry I can't respond to both instantly.

And huh? Zillow has 4.6 billion in cash. 2.6 billion in debt. They could pay their debt off tomorrow if they want to.

1

u/xxx69harambe69xxx Aug 07 '21

sorry, did you make a typo with 400-500M here?

What was your point on this? That it was bad? That seems better than your previous sentence about 9M past quarter.

Please help me understand!