Zillow (NASDAQ:ZG) Still A Buy As Real Estate Gains Big

It could be forgiven, thinking that real estate is a dead horse right now because no one wants to drop that kind of money on dirt. Or worse, go deep into debt to finance such a buy when you don't know from one day to the next if you'll still have a job to pay it off. That's not the case at Zillow (NASDAQ:ZG), where the company posted a loss, but still managed to beat estimates and make itself look like a buy, at least in the near-term.

Beating Lowered Expectations Can Make You a Champ

Zillow posted a loss for the latest quarter and a loss that most of Wall Street expected. That mattered less than you might think. Zillow came in with a loss of $84.5 million total, roughly $0.38 per share. However, the consensus estimate as expressed by FactSet suggested a loss of $0.68 per share, which actually turned out better than most could ask for. Zillow also has kind of a history of losses; a year ago, the company lost $72 million, about $0.35 per share.

Despite the per-share losses, though, the company did post improved revenue. In fact, it's up substantially; the company posted $768 million in revenue, which compares beautifully to the same time the preceding year, when it posted $600 million in revenue. The FactSet estimates, meanwhile, expected Zillow to only post a small gain over this time last year, $615 million in revenue.

Helped By Market Conditions, and People Frantically Abandoning City

It's worth considering, at this point, just what drove Zillow's better-than-expected turnout, especially in the middle of a pandemic economy when people were hoarding toilet paper as opposed to looking for real estate. According to Zillow's chief executive, Rich Barton, the gains are a result of several factors working together; between the increasing convergence of real estate and technology coupled with the fact that people are increasingly shopping for just about everything online, that's giving Zillow and its ilk a real boost. Our own research called Zillow a stock to buy back in late July.

One point Barton expressed, though, has been met with skepticism on several fronts. Barton expressed his belief that we were “...at the dawn of a Great Reshuffling,” in which people increasingly no longer need to both live and work in cities thanks to an increased acceptance of telecommuting. We've seen a lot of companies make plenty of hay as the result of the telecommuting sun shining, as companies from Dropbox (NASDAQ:DBX) to Intel (NASDAQ:INTC) make gains on the notion that people can really work from home and do a decent job of it.

With such a set of circumstances in mind, Barton and those who think like him note, it's entirely possible to move to the suburbs, or even out to the country if the internet access is decent, and still keep a big-city job without a huge commute. With developments in 4G LTE and even 5G providing speeds and bandwidth availability on par with cable in some cases, finding decent internet access in the countryside is much less the sadly hilarious proposition that it once was.

Total Nonsense? Or Just Partial Nonsense?

Barton's belief has been called “total nonsense” by some, who note that using search data from places like Zillow to establish and support such a notion is “problematic.” After all, it's entirely possible to look at places on Zillow, sigh wistfully, and then go back to your downtown apartment without actually signing any huge checks.

However, the nonsense in such a statement is nowhere near total. With telecommuting widely available for the first time ever—it's actually saved some companies from outright destitution—there is a certain proportion of people who think that they no longer need the headaches and high costs of city living when they can move to the country for reasonable prices. While the fleeing certainly isn't as frantic as some would like to believe, there can be no doubt that a certain quantity of fleeing has taken place.

Between the coronavirus, which seems to be hitting major cities much harder than the countryside, and still-going civil unrest in many places like Portland and Seattle, it's easy to see how the comparative peace, quiet, and reduced chances of horrible viral death the country offers can be attractive. Throw in the ability to find and keep a job that doesn't require backbreaking labor—or worse, retail—and the proposition only improves.

There is no doubt that Zillow has benefited from people looking to get out of the cities. As long as people have that desire, Zillow will benefit from it. While that desire may not last forever—certainly not in its current form—for the short term, Zillow will benefit, and that makes it look that much more attractive to investors.