Zillow Splits – Is Z Stock Worse Than ZG Stock?

Zillow (Z, ZG), the online real estate portal, has recently completed a stock split of sorts by issuing nonvoting Class C stock to shareholders.

Existing Zillow stock holders received two shares of Class C stock, which now takes over the old Z stock ticker symbol, for each share of Class A and Class B stock they own. Class A shares will now trade under the new ZG stock symbol on the Nasdaq.

The move comes after Z stock had fallen by about 20% year-to-date, though your favorite financial data provider might have trouble calculating the YTD returns on Zillow for a few days thanks to the change.

But what does the move really mean for shareholders, and is ZG better or worse than Z stock?

For starters, let’s acknowledge that moves like this are not brand new. In fact, Google (GOOG, GOOGL) delivered a similar multiple-share system when it split in 2014.

Let’s also acknowledge that the move was clearly for the use of stock as capital — that is, to use Zillow shares for stock-based acquisitions or compensation plans or the like. This risks dilution if abused, but is quite common at companies like Google and Facebook (FB) and other growth-oriented tech stocks.

In other words, it’s just a kind of accounting trick and doesn’t change the fundamentals of the business.

To me, the most important reason to buy either Z or ZG stock is because you believe in the long-term growth of the online real estate biz and/or you like the prospects of Zillow’s operations.

I’m big on the former, since I personally used the Internet to do most of the legwork on my own home purchase a few years ago and believe this is the way of the future. I’m less bullish on Zillow in particular, however, given a history of losses. Those losses have gotten narrower and revenue is improving, but the flop year-to-date hints at concerns over growth and stability.

In other words, don’t sweat the Zillow stock split and just focus on the underlying business. There’s sure to be volatility, given its high growth potential and the $2.5 billion acquisition of rival Trulia recently, but that volatility could be to the upside if things go well.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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