By Brian Bolan
Zillow (Z) was the Bull of the Day on May 10, 2013, and over the last 5 months the stock saw price appreciation of nearly 40%. The stock is once again a Zacks Rank No. 1 (Strong Buy), and it is the Bull of the Day.
Since the Last Bull of the Day
I already noted that the last time I highlighted this stock was May 10, but that was three days after the company reported 1Q13 earnings. The stock fell about 7% following the release, which provided an excellent buying opportunity for investors.
Over the past five months, the company had another earnings report, which was released on August 6. This was a solid beat, with revenue coming in 5.6% ahead of the Zacks Consensus Estimate and earnings that really surprised. In posting a loss of thirty cents for the quarter, Zillow delivered a 23% positive earnings surprise, beating the Zacks Consensus Earnings Estimate by nine cents.
The most recent quarter saw a significant increase in unique users. More than 54M uniques for 2Q13 represented growth of 16% ahead of the most recent quarter and 62% more than the same quarter in the previous year. That was an acceleration of 47% growth rate that was posted in the previous quarter. Clearly, more people are going to Zillow to learn about and shop for real estate.
Zillow operates of a real estate and home-related information marketplace on mobile and the Web. It covers 110 million homes and provides a "Zestimate" or a Zillow provided estimate for homes, town homes and condominiums. The company has also expanded into the rental industry.
Z Beats Estimates In Four of Last Five Quarters
Dating back to the June 2012 quarter, Zillow has beaten the Zacks Consensus Estimate in four of the last five quarters. The June 2012 quarter saw the company post earnings of $0.04, $0.05 ahead of the Zacks Consensus estimate for a 500% positive earnings surprise. The following quarter saw a six cent beat which translated into a 600% positive earnings surprise.
The lone miss was the March 2013 quarter, as the company missed the Zacks Consensus Estimate by a penny.
Billionaire investor James Packer became the latest Australian to acquire a massive amount of Zillow shares. In early September it was revealed that Cavalan Holdings, an entity controlled by Packer, bought roughly 3 million shares on the open market. That gave the investor a 9.4% stake in the company making him the second largest holder of Zillow stock.
This investment follows another investor from the "Land Down Under," which happens to be the largest shareholder. Caledonia Private Investments holds more than 5.1 million shares.
Acquisition of StreetEasy
On August 19, 2013, Zillow announced the acquisition of StreetEasy the leading real estate website in New York City for $50 million in cash. As the one of the most popular real estate sites in the world's most dynamic real estate market, Zillow cemented its leadership position in the space.
Since that acquisition, StreetEasy has maintained its leadership in the New York City area and has moved to consolidate its own operations and focus solely on NYC.
It goes without saying that StreetEasy is a very valuable property and the company likely held an auction to sell itself. Its decision to go with the market leader is one that should not be lost investors.
The valuation picture for Z has moved higher since the last time I wrote about this company as the Bull of the Day. One has to imagine the earnings beat and general growth in revenues have helped push many valuation metrics higher. Those higher metrics have also pushed the stock price higher over the last five months. When I look at PE, I see a negative expected earnings number, so a comparison is not that easy. Instead of PE, Look at the revenue and earnings growth that is expected for Zillow vs. the industry average. The company is expected to post 42% revenue growth in 2014 vs an industry average of 7.3%. Analysts are expecting Zillow to produce 99.8% in earnings growth for 2014 compared to 13.9% earnings growth as an industry average. Clearly, Zillow is growing much faster than the industry average.
I opted for a 6 months chart of Zillow for a reason. The Bull of the Day on May 10 came after what I thought was an unjustified sell off in the stock. I urged investors to take a hard look at the company and its growth and think about an investment in the stock. Needless to say you would have had market crushing gains had you purchased Zillow at that time. More recently, we see the stock reaching just over $100 at the start of September and has since retraced back to around $80. This is a very similar instance as the first Bull of the Day article in that I write it after a pullback and expect the stock and company to continue to outperform.