Key Highlights

  • Stock analyst with Seeking Alpha recommends “Sell” rating on Zillow
  • Analyst calls Zillow a magical stock in magical investment environment
  • Stock price, currently, is $87/share but analyst sees combined value at $20/share 

Gary J. Gordon, a stock/investment advisor with Seeking Alpha and investor, just issued a “Sell” rating on Zillow.

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For the record, Zillow has been a Wall Street darling since the company made its preview as a publicly traded entity. The good news? The company’s share price has doubled this year and, in fact, tripled off its bottom price. BUT, while Zillow’s stock has been doubling and tripling, the company itself has lost money over the last five years.

Currently, Wall Street analysts, according to Yahoo Finance, anticipate that Zillow will face another loss this year (-$0.40) and yet another loss (-$.13) in 2021. Sure, Zillow could pull it out and come out on top but Gordon does not think Zillow will realize anything but a losing scenario.

Gordon believes that a successful scenario for any publicly traded company involves earnings and profits. Gordon calls the prospect of Zillow generating profits “slim” and targets the company’s share price at -77% below its current price of $87/share.

Gordon summarizes Zillow’s three businesses as…

  • Homes, its iBuying and home flipping division
  • Mortgages, its home mortgage loan origination division
  • Zillow Media (his name), its website that refers potential homebuyers and renters to realtors who pay a fee

Gordon’s broken down valuations for these three businesses under the Zillow umbrella are…

  • Homes valuation = $0/share
    • $490M of losses in six quarters
    • Gross margin challenges of having to buy and sell homes
    • At best, modest profitability
  • Mortgage’s valuation -=$0/share
    • -$58M in losses to date
    • Current refinance boom has pushed down origination volume by -40%, just like last four refinance booms
  • Media’s valuation = $20/share
    • Now a “real” business with real profits BUT business has limits
    • It an advertising outlet for real estate brokers/agents for home sales
    • Currently has market share of 25%, up from 14% in 2015 – if Zillow increases market share +7% a year rather than Gordon’s assumed +2%/year, the Media valuation could be up to $35/share

Under Gordon’s VERY best calculations with the company adding more industries (such as Zillow Streaming, Zillow Pharmaceuticals, etc.) under its advertising division, this trader only gets to $65/share particularly since Gordon is not optimistic about the company being able to substantially increase its Home and Mortgage divisions.

If you’d like more on Gordon’s thinking, about Zillow, please click,

Thanks to SeekingAlpha.

Also read: Wall Street’s Resurging Buy-to-Rent Scheme, Will US Home Sales Continue to Flummox Experts?, Latest Jobless Claims “Appear” to Drop BUT There’s a Caveat

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