Zillow - Fantasy Will Ultimately Give Way To Cold Hard Reality: $20 Price Target

Sep. 02, 2020 10:24 AM ETZillow Group, Inc. (Z)19 Comments
Gary J. Gordon profile picture
Gary J. Gordon


  • I value Zillow's three business segments for a combined $20/per share.
  • Homes, its house-flipping business is worth $0 per share at best.
  • I believe the Mortgage segment is also worth $0.
  • Zillow Media, its real estate web site, is a real business that I believe is worth $20 per share.
  • I have a strong sell rating on Zillow.

Zillow is truly a magical stock. It has doubled this year, and tripled off its bottom. And why not? Zillow lost money the last five years, but Wall Street analysts (Yahoo Finance) expect…another loss this year (-$0.40) and another loss next year (-$0.13). Yes, Zillow could beat these estimates and break even or eke out a small profit. But even Zillow’s most ardent supporters can’t argue that this year’s rally is due to near-term earnings.

Yes, Zillow is a magical stock in a magical investment environment. A time when a strong internet presence – and yes, Zillow has that – is enough to let investors dream big dreams.

But the fact is that those ultimately dreams have to be about earnings, however far in the future. Owning a stock is owning a piece of a company, and the reason you and I like owning pieces of a company are that we share in its earnings stream. So this, my second report on Zillow (the first was Zillow: The Stock Is A Zell) returns to the question of whether Zillow’s three businesses can generate sufficient profits over the long run to justify its current price of $87, no less a higher price. My conclusion is again is that the prospect is quite slim indeed. I therefore reiterate my zell – sorry, sell – call on Zillow. And not just a "somewhat overpriced" sell. My target price is a dazzling 77% below its current price. Magical times create some fantastical creatures.

What is a Zillow?

For newbies to the stock, a quick review of those three businesses:

· Homes, which buys and flips homes.

· Mortgages, which originates home mortgage loans.

· Zillow Media (my name), which refers prospective homebuyers and renters who visit its web site to realtors for a fee.

This article was written by

Gary J. Gordon profile picture
Gary Gordon’s career was on Wall Street, where he was a stock analyst covering the housing, mortgage and consumer finance industries. He also served as a U.S. investment strategist and as a portfolio manager. The bulk of his work career was at PaineWebber and UBS. He is now retired. Mr. Gordon is an adjunct professor at Mercy College in New York. He teaches economics on campus and math at prisons (Sing Sing and Taconic in New York). He also presents financial literacy seminars to adults and students. He is on the Board of Hudson Link (college education for incarcerated men and women) and the Baron de Hirsch Fund. Mr. Gordon is married with two young adult children. He has degrees from Colgate University (BA '74, philosophy) and The Wharton School (MBA '77, finance).

Disclosure: I am/we are short Z. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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