Count On the New Super-App to Catalyze Zillow Group

Seattle-based Zillow Group (NASDAQ:ZG) is, by and large, known and respected as a popular online real estate marketplace. With a stake in ZG stock, investors can get exposure to the technology and real estate sectors at the same time.

zillow app icon on a mobile phone
Source: OpturaDesign / Shutterstock.com

Famously (or should I say infamously), Zillow attempted to diversify its business model by expanding into iBuying/home-flipping. Zillow’s iBuying business, started in 2018 and called Zillow Offers, was an abject failure.

With its tail firmly between its legs, Zillow officially exited the iBuying business on Nov. 2, 2021. This was probably for the best, but it didn’t stop investors from dumping their ZG stock shares.

This leaves us with a billion-dollar question: can Zillow get its mojo back? Apparently, the company remains confident – and Zillow’s revenue target might offer some encouragement to the loyal but frustrated shareholders.

A Closer Look at ZG Stock

Just to be clear, Zillow (NASDAQ:Z) is the Class C version of the stock, while ZG/Zillow Group is the Class A version.

The Class A and C versions of the stock behave very similarly, as you might expect. And, they’ve both been on a downward trajectory lately.

As for ZG stock in particular, it topped out at $208.11 on Feb. 16, 2021. That was a time of speculative frenzy, meme-stock mania and general euphoria on Wall Street.

It’s easy to say that Zillow Group’s shareholders should have taken profits at the $200 level. As they say, however, hindsight is always 20/20.

Fast-forward to early March of 2022, and ZG stock was trading near $51. Undoubtedly, it’s been frustrating for some shareholders to watch the stock make a round trip from the $50 area to $200 and back.

Making matters worse is the fact that, unlike some other real-estate-related companies, Zillow Group doesn’t pay a dividend. Knowing this – and in light of Zillow Group’s iBuying fiasco and subsequent share-price decline – is there any good news to report at all?

Behold, the Housing Super-App

As the dust clears from Zillow Group’s iBuying debacle, the silver lining is that the company can now focus on its core business: providing a next-level digital real estate platform.

Apparently, Zillow Group is taking this objective seriously as the company seeks to build an all-in-one app that enables its users to buy, sell, finance and rent properties.

According to a shareholder letter, Zillow Group is building a “housing super app.” The company describes it as an “integrated digital
experience in which Zillow connects all the fragmented pieces of the moving process and brings them together on one transaction platform.”

Zillow Group claims to be well positioned to introduce such an app, as the company already has more than three times the number of daily active app users than its closest competitor.

Surprisingly Confident

The skeptics might say that the super-app is Zillow Group’s Hail-Mary pass. If it fails, the company could be in big trouble.

This skepticism isn’t unfounded. We already discussed the iBuying disaster and the collapse of ZG stock. Moreover, Zillow Group admitted that home buyers are “likely to face another challenging home shopping season later this year, contending with record-low inventory and unprecedented price growth.”

Furthermore, Zillow Group posted a $261.2 million net earnings loss in 2021’s fourth quarter. That’s a drastic failure compared to the company’s net earnings gain of $46 million in the prior-year quarter.

In other words, there’s a lot riding on Zillow Group’s upcoming super-app. Still, the company is surprisingly confident. Evidently, Zillow Group anticipates $5 billion in annual revenue, as well as 45% EBITDA margin, by the end of 2025.

The Bottom Line

Only time will tell whether Zillow Group’s super-app will catalyze a sustained comeback.

At the very least, we can say that there’s no shortage of ambition and confidence. Plus, it’s encouraging to see Zillow Group focusing on its core business.

In the final analysis, ZG stock probably flew too high, but now it’s more reasonably priced. There are no guarantees, but for all we know, Zillow Group’s super-app could actually provide some super financial results.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2022/03/count-on-the-new-super-app-to-catalyze-distressed-zg-stock/.

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