𝐒𝐡𝐨𝐮𝐥𝐝 𝐲𝐨𝐮 𝐛𝐮𝐲 𝐭𝐡𝐞 𝐝𝐢𝐩 𝐨𝐧 $Z (Zillow Group Inc) ?
𝐖𝐡𝐚𝐭 𝐜𝐚𝐮𝐬𝐞𝐝 𝐭𝐡𝐞 𝐬𝐞𝐥𝐥 𝐨𝐟𝐟?
Zillow announced it was closing its home flipping business in its most recent quarterly earnings. The business was to use an algorithm to generate offers on houses, do light touch renovations and then sell for a profit skipping agent fees. Unfortunately, accurately predicting house prices proved too difficult for Zillow. The home segment made up around 2/3 of Zillows revenue but was unprofitable. This has caused Zillow's shares to drop over 30% in the last couple of weeks.
Despite being 2/3 of Zillows revenue, the home business was not 2/3 of Zillows value. The home business could only ever have achieved a mid-single digit margin, as opposed to the rest of Zillow, a real estate platform which aims to digitise the act of home buying/selling, with EBITDA margins of roughly 40%. Zillow is aiming to be a one-stop-shop, with the entire process of selling or buying a home done from Zillows platform.
𝐖𝐡𝐚𝐭'𝐬 𝐢𝐭 𝐰𝐨𝐫𝐭𝐡?
The rest of Zillow is growing at around 20% per year, and now that Zillow has dropped the home buying business it can focus more capital on its platform. EBITDA for the IMT/Mortgage business is expected to be around $800 million per year, growing at a rate of roughly 20%, and no debt. Valuing the business at 30x EBITDA gives a value of $24bn, or $94 per share.
To conclude, Zillow has closed it home business, but the rest of Zillow is worth a lot more than the market believes!
💠 𝐎𝐟𝐟𝐢𝐜𝐢𝐚𝐥 𝐞𝐓𝐨𝐫𝐨 𝐕𝐚𝐥𝐮𝐞 𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫 💠... Show More
-14% in November ? This is very disappointing... I had so much hope in your performance but this is literally the worst crash in my portfolio. An explanation ? No message since 26 days...... Show More Translate