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 #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.
Company Description
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, townhomes 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.
Australian Investors
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.
Valuation
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.
The Chart
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.
Brian Bolan is a Stock Strategist
for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the
stocks in the portfolio.
Brian is also the editor of Breakout Growth
Trader
a trading service that focuses on small cap stocks and
also
carries
a risk limiting strategy. Subscribers get daily emails along
with
buy, and sell alerts.
Follow Brian Bolan on twitter at
@BBolan1
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