January 2022, I wrote about Zillow, ticker symbol Z. I mentioned that it was trading for $49.59 on 1/25/22, and I thought it was a decent long term investment. The stock has had a rough ride since then. Over the course of this past year it dropped to a low of $33.80. It’s currently trading at $54.60, so if you purchased it at the end of January 2022 and are still holding onto Zillow stock you are up a little over 10%, which isn’t terrible but you'd have done far better elsewhere. It's not exactly a stock purchase you’d brag about (unless you got it this past year in the low to mid 30’s). Timing is of course everything, in the stock market and in life.
I still think Zillow as a long term investment is not a bad idea, but then again I haven’t purchased the stock and have no plans to do so. I think Zillow is a useful tool in general for buyers, homeowners and Realtors, but I’ve got issues with the direction the company has taken. First and foremost, it’s not profitable, and currently has -.65 EPS (earnings per share). Zillow is not going to approach their pandemic fueled all time high of 203.79 on 2/16/21 until they start actually making money.
You can’t say the company hasn’t tried, and failed. Zillow got into the ‘fix and flopping’ business and lost $300 million before pulling the plug on their pilot program. I don’t know whose brilliant idea it was to get into the highly speculative business of flipping houses, but I wouldn’t doubt if they no longer work for Zillow.
Despite its financial woes, Zillow is a useful brand in the real estate business. Lots of homeowners go onto the website to get Zestimates, which give a computer generated value of their homes. While not necessarily accurate, the Zestimates give a decent understanding of property price trends and generic values. Buyers also like to go to the site to search listings, and get email notifications of new listings. Realtors pay to be displayed on pages for lead generation purposes. Zillow has real traction with buyers, sellers and Realtors.
Years ago, for one year, I was a ‘Premier Agent’ with Zillow, where I paid for leads, but the program wasn’t for me. However, there are lots of Realtors out there who are great with the Premier Agent Zillow leads. That’s why Zillow sells Realtor exposure to each zip code, and the more in-demand the zip code, the higher the price. Zillow often charges a very pretty penny for lead generation to Realtors in Marin County. Zillow also allows Realtors to keep a profile on their page for free, which is what I still do. Because it’s free, I recommend Realtor’s take advantage of this bit of exposure.
In short, Zillow has found a place in the real estate world. While they aren’t currently profitable, I think in the long term they will be. If you’ve got money to invest in the stock market, I don’t think Zillow is the place to put it at this time. B of A securities and Merrill Lynch have both recently downgraded Zillow from Buy to Neutral. Sometime in the future they will look like an attractive investment again. In the meantime, I’m sure they will continue to attract buyers, sellers and Realtors as they become further entrenched in the housing market.