Zillow Stops Homebuying: How Will This Impact Their Stock Forecast?

Seeking Alpha2021-11-04

Summary Zillow had paused, and now will completely wind down, home buying with the division terminating over the next few quarters. There is evidence of a slowing housing market and Zillow is ...

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BlissNHappy
2021-11-04
BlissNHappy
Not exactly

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nZillow Stops Homebuying: How Will This Impact Their Stock Forecast?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-11-04 15:31 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4464868-zilllow-stops-homebuying-stock-forecast><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nZillow had paused, and now will completely wind down, home buying with the division terminating over the next few quarters.\nThere is evidence of a slowing housing market and Zillow is ...</p>\n\n<a href=\"https://seekingalpha.com/article/4464868-zilllow-stops-homebuying-stock-forecast\">网页链接</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"ZG","symbol_name":"Zillow Class A","start_time":0,"source_url":"https://seekingalpha.com/article/4464868-zilllow-stops-homebuying-stock-forecast","article_id":"1196366330","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1196366330","pubTimestamp":1636011077,"sourceInfo":null,"weMediaInfo":null,"summary":"Summary\n\nZillow had paused, and now will completely wind down, home buying with the division termina","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"ZG":"Zillow Class A","Z":"Zillow"},"translate_title":"Zillow停止购房：这将如何影响他们的股票预测？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"Z":0.9,"ZG":0.9},"content_text":"Summary\n\nZillow had paused, and now will completely wind down, home buying with the division terminating over the next few quarters.\nThere is evidence of a slowing housing market and Zillow is reportedly offloading homes below cost and will take a significant asset write-down.\nZillow's stock has been in a downward cycle since February of this year, and this shows no signs of slowing.\nThe IMT segment posted positive Q3 results, which were obviously overshadowed by the news above.\nHow do these moving parts impact the company's prospects?\n\nXacto/E+ via Getty Images\nWhy Did Zillow Stop Home Buying?\nZillow Group, Inc. (Z) is a digital real estate company which operates in three divisions. First, it operates its Internet, Media, and Technology (IMT) segment which produces revenue through Premier Agent or advertising revenues from agents. Second, the mortgage segment makes money by performing loan originations and reselling mortgages. The third segment, and largest segment by revenue, is the Homes segment, commonly known as Zillow Offers. In this segment the company purchases, fixes, and resells residential real estate. Zillow announced it will be winding this segment down completely during their Q3 earnings release. The wind-down includes an asset write-down of over $300M as well.\nSo, how did we get here?\nIn mid-October, Zillow paused this segment through at least the end of 2021.\n\n We are beyond operational capacity in our Zillow Offers business and are not taking on additional contracts to purchase homes at this time...\"\n\n\n Company Spokesman per Seeking Alpha, courtesy Bloomberg.\n\nThis news had both positive and negative elements. First, on the positive side, it is obvious that the iBuying program is immensely popular. Zillow reported that 1% of homes in Q2 2021 used some type of iBuying program. This may not seem significant at just 1%, however considering the United States home sales market is expected to reach $2.5 trillion in 2021, this is a very big number indeed. I also considered it positive that Zillow recognized that they were becoming overextended and paused, rather than risking serious systemic issues that would hurt customers and damage their reputation.\nThis has clear implications for competitors like Redfin (RDFN) and Opendoor (OPEN) to accumulate market share. The iBuying process is popular, but it must be managed correctly. I have seen no indication that they will cease their programs.\nFurther, this could be a reflection that the red-hot market is cooling. Zillow may have many more sellers in line than buyers. While the secular demand trends are expected to be positive, as the country is short millions of homes, the short-term could get bumpy. Two days prior to this announcement, Redfin reported a drop in both homes sales, which dropped 9%, and new listings, which fell 5%.\nOther reasons for the pause, included macroeconomic issues that many businesses are currently facing. These include supply and labor shortages that have extended the process of reselling a home.\n\n We're operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing spaces...\n\n\n \"Pausing new contracts will enable us to focus on sellers already under contract with us and our current home inventory,\"\n\n\n Jeremy Wacksman, Zillow CEO, in a statement.\n\nBecause of this, higher costs of renovations could significantly tighten margins. In fact, more than half of the homes recently purchased may be under water, as I will discuss below.\nHome prices had been on fire for the first half of this year when Zillow was a buyer. Now that the market is taking a breather, these homes are waiting for buyers and the prices are coming down. This is a serious risk that every iBuying company will face. And the risk is structural. Shown below, prices have inched down ever so slightly from the red-hot summer months. It is worrisome that Zillow has purchased in the summer, while prices were highest, and is now selling in the fall when the kids are back in school and the market has slowed.\nData by YCharts\nZillow Stock Price\nThis news caused nervous investors to accelerate the downtrend in the stock, fearing a structural difficulty that could linger. The stock fell nearly 10% total in the days around the announcement.\nData by YCharts\nHowever, cooler heads prevailed and the stock recovered somewhat thanks to a bullish hedge fund call which I discuss below. It is still stuck in a persistent downward trend since earlier this year, as shown below in the YTD chart.\nData by YCharts\nOne positive note for the stock is the interest from hedge fund manager Gil Simon of SoMa Equity Partners who recommended the stock and sees a \"compelling\" long-term opportunity. As the stock price has been cut in half since February 2021 it is difficult not to see it as oversold. Especially as certain metrics begin to resemble those from before the pandemic. This bullish call was made after the \"pause\" announcement, but before the \"wind down\" announcement.\nAt the same time, not all analysts were or are bullish. Bank of America cut its price target from $100 to $85 on October 28, 2021.\nThen, to start out November on a sour note, a KeyBanc analyst pointed to a study done by the firm that shows well over half the home scurrently listed are selling forlessthan the purchase price. This led to another selloff of more than 10% to open the month of November, pictured below. This looked to confirm some of the worst fears when the pause was implemented.\nData by YCharts\nZillow Stock Forecast\nQ3 results are almost an afterthought at this point. There are some positives in the release, however. The IMT segment posted impressive revenue and EBITDA figures. The segment has grown revenues at a compound annual growth rate (CAGR) over 15% since 2018, or 52% total. Adjusted EBITDA in this segment has grown at a CAGR over 50% during this time and reached $836M for the trailing twelve months ended September 30, 2021. This will be the key to success moving forward. Zillow also has the opportunity to focus on profitability moving forward rather than growth at any cost. The IMT segment is generally profitable, while the homebuying segment has been unprofitable historically. Mortgages have profit potential as well, having posted positive adjusted EBITDA in Q3 2021, albeit only $5M. It remains to be seen exactly how Zillow will move forward, but a focus on becoming cash-flow and EBITDA positive overall and the core business would be wise.\nIs Zillow Stock A Buy, Sell, or Hold?\nAnalysts have a gigantic spread in opinion on Zillow. Some have price targets at $145 while others have cut to just $85. The average target, according to Seeking Alpha's Wall St. Rating center is $98.50. There is much uncertainty after the announcement of the wind-down and we will likely see significant adjustments downward in the next several days.\nThis uncertainty may bring about an opportunity to invest while the stock is heavily beaten down, but the best opportunity is likely not today. There is a real danger that there is more bad news to come. The stock will also need to be rerated by analysts and the news digested by Wall Street. At this time Zillow is far too risky to initiate a position.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":848514751,"gmtCreate":1636012262021,"gmtModify":1636012279057,"author":{"id":"3562581214716129","authorId":"3562581214716129","name":"BlissNHappy","avatar":"https://static.tigerbbs.com/57c8ae1247419aff13ee8033c4ac6c63","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Not exactly","listText":"Not exactly","text":"Not exactly","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/848514751","repostId":1196366330,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":26,"commentSize":1,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.25.1","shortVersion":"4.25.1","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1196366330"}