Zillow Group Inc. (NASDAQ: ZG) Stock a Buy: Rethinking Real Estate

When you think about the current state of the economy, it’s hard to imagine a lot of people heading out to buy houses during a pandemic-induced recession. With record unemployment and more and more borrowers having to delay their monthly mortgage payments, you might think that buying a new home is the last thing on peoples’ minds at this time. However, this isn’t the normal recession, and it appears that the homebuyer demand is actually rebounding faster than previously anticipated mostly thanks to record low-interest rates. The U.S. residential real estate market was worth $1.9 trillion in transaction value in 2019, which bodes well for companies that are involved in the industry.

There are a few great reasons why investors should be looking at a stock like Zillow Group Inc. (NASDAQ: ZG), which has been performing nicely since bouncing off of it’s March 52-week low. It’s a company that is changing the way that people buy houses and if the rapid recovery in home buying continues, the stock could reward investors in a big way. Let’s take a look at Zillow below and discuss a few reasons why it’s worth a look for your portfolio at this time.

Zillow Changing the Way People Buy Homes

It’s always refreshing to see a company changing a process that hasn’t had an update in years. That’s exactly the case with Zillow, which is an online real estate database that allows users to search for a property and view estimated property values for free. The company has a massive amount of properties to choose from and makes money by charging property management companies to advertise their listings on its network. It’s the top real estate website in the U.S. for a reason, and it received 8.1 billion visits in 2019.

The company has been around since 2006 and is working on a new initiative that could make things a lot easier for homeowners trying to sell their houses. Zillow Offers is a program that provides a way for homeowners to sell their houses online with virtual tours and also helps buyers with things like financing, title insurance, moving, and renovation. This would be a big update to a process is notoriously tedious. If the company can execute its vision, Zillow Offers has the potential to make Zillow the leader in real estate transactions in the United States.

Pandemic House Hunting

In addition to the current economic recession, homebuyers have the added health risk of visiting houses in-person during the global pandemic. This is actually not a big problem for Zillow since the company’s online platform allows for virtual tours. Thanks to limited human interaction and nice features like 3D virtual walkthroughs, homebuyers are able to pursue house hunting and closeout transactions digitally without having to risk their health.

There are other trends that seem to be working in Zillow’s favor as well. Since more and more people are working remotely, many real estate analysts believe that homebuyers will make the move away from high-cost cities and into smaller cities and suburbs. After all, buyers recognize that they can get much more bang for their buck by moving away from crowded cities and expensive tech hubs. This is a trend that should absolutely work in Zillow’s favor.

Zillow - Nice Earnings Beat

Back in May, expectations were quite low for the company’s Q1 earnings report thanks to the pandemic and the overall impression that home-buying was on the backburner. However, Zillow Group reported year-over-year revenue growth of 11% along with consolidated quarterly revenue growth of 148% year-over-year. This was largely driven by Zillow Offers sales, which is a good sign for investors since it means that more people are using the service for their home purchases. Although the company is still working its way towards profitability, Q1 was encouraging.

The company also has a solid balance sheet with cash and investments of $2.6 billion as of Q1. If you are worried about things slowing down for Zillow due to the pandemic, it’s good to know that Zillow resumed buying homes in five more markets including Los Angeles, Minneapolis, Orlando, Riverside, and Cincinnati on July 7^th. The fact that Zillow had such a strong quarter during the beginning of the pandemic is a sign of strength for the business and it’s also good to see that the company is adding more homes to its inventory at this time.

Rethinking Real Estate

If you are interested in adding shares of the premier real estate database in the United States that has the potential of changing the way that people buy homes, Zillow is absolutely worth a look. Even if we face a prolonged economic recovery, there’s enough positive momentum that is working in the company’s favor to potentially reward patient investors over the long run.