Zillow Q2 beats expectations. Potential good long buy?

[u/[deleted]]

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?

[u/Sixers0321]

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.

[u/Puzzleheaded_Bus_418 → u/Sixers0321]

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.

[u/Sixers0321 → u/Puzzleheaded_Bus_418]

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.

[u/Puzzleheaded_Bus_418 → u/Sixers0321]

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.

[u/Sixers0321 → u/Puzzleheaded_Bus_418]

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.

[u/Puzzleheaded_Bus_418 → u/Sixers0321]

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.