STOCK PICK: The Home Buying Process, Redefined
A powerful tool that simplifies buying and selling homes for all.
Buying and selling real estate is has a reputation of being tedious, lots of paperwork, expensive, time-consuming, and often difficult for the average consumer to understand. In a world where convenience and instant gratification are the norms, consumers are starting to think the same should be the norm for real estate.
That's where Zillow (NASDAQ: Z) comes in. Zillow has created a diversified technology-based real estate company that allows real estate agents, consumers, and businesses access to a more streamlined experience when buying and selling your home. The CEO & Founder, RIch Barton, has a track record of building highly successful companies, and Zillow is his next masterpiece. I think Zillow is an exceptional investment opportunity that will have market-beating returns for years to come. Here's why.
Company Overview
Zillow (NASDAQ: Z) used to be primarily a marketing platform for real estate agents to market and sell their listings. It has grown to be the "go-to" hub for real estate agents, homebuyers, home sellers, renters, and rental owners alike. So, is Zillow a good stock to buy? Here's why I think Zillow is a potential "Tenbagger" investment.
Why Invest In Zillow?
Strong Financials
Zillow's year-over-year revenue growth is roughly 30.1 % as of this writing. It has a large amount of cash on hand, sitting at $3.37 billion, to be exact. It has even less debt at just $1.86 billion.1
Having more cash than debt is a great sign that a company has its finances under control.
Furthermore, its twelve-month operating cash flow sits at approximately $1.2 billion with a whopping $1.21 million of levered free cash flow.2
What does all this spell? Respectively, it means that Zillow has a popular product that its customers love, enough cash to weather any market conditions, even less debt to worry about, and half a billion in extra cash to use as they see fit to grow the company.
First Mover Advantage
Companies with a first-mover advantage tend to perform better than the competition. Zillow’s platform solves the inconvenience of using multiple services to list, sell, buy, or even finance your home. How? Zillow provides all these services in one convenient location. Zillow is the market leading platform to have a convenient, all-in-one solution that is worth using.
Diversified Product Holdings
When you invest in Zillow, you're investing in a basket of highly reputable companies. Most of these are Zillow companies while a few are acquisitions - a growing trend that Zillow has implemented in its growth strategy. Zillow's brands and companies include:
Zillow
Zillow Rentals
Zillow Premier Agent
Zillow Premier Broker Services
Zillow Home Loans
Zillow Closing Services
Zillow Homes, Inc.
Trulia
Out East
StreetEasy
HotPads
Furthermore, Zillow provides real estate agents with additional marketing tools such as:
Mortech
Dotloop
Bridge Interactive
New Home Feed
ShowingTime
Having a diversified product list means having multiple streams of income and removes the dependency a company has on just one income source. From an investment standpoint, this provides peace of mind and security that should one income stream experience issues, the company has multiple others that could ease the burden.3
Leadership
Aside from founding the real estate game-changer, Zillow, Rich Barton founded Expedia and Glassdoor as well. Both are wildly successful businesses that are used regularly worldwide. The fact that Rich Barton has already founded two wildly successful businesses before building Zillow gives one confidence that Zillow will be all the more successful.4
When put in difficult circumstances, a true leader can shine. Back in 2017, Zillow launched "Zillow Offers" - allowing customers to sell their homes directly to Zillow for a cash offer to eliminate the headache of listing and selling their home. However, it was quickly discovered that Zillow Offers was hurting their bottom line and had to be shut down quickly. In short, some may see this as a failure, when in fact, I see it as a wildly successful move by a CEO with a lot of pressure on both sides of the argument. By doing so, Zillow maintained solid financials and a compelling product even through a global pandemic.
Competitors
Redfin (NASDAQ: RDFN): Redfin is considered a real estate brokerage company that operates in the US & Canada. They are similar to Zillow in that they have a huge platform for real estate agents to list homes and for consumers to find homes to buy. Their approach is to streamline the whole real estate purchase process by providing us access to all of their Redfin resources from agents, to financing, to finding the right home.
Opendoor (NASDAQ: OPEN): Opendoor is a digital platform for residential real estate in the US that allows consumers to buy and sell their homes online.
My Opinion
Before most of us were of adult age, or even born for that matter, stocks were traded via actual certificates traded between consumers. Once the internet became mainstream, that provided an opportunity for people to invest and trade stocks digitally with the click of a mouse, and from anyone worldwide. I see the same thing happening with real estate. What is currently a traditional process of buying and selling houses via a real estate agent, lengthy paperwork, high fees, and a major headache (to say the least), is likely to become a more streamlined process with the help of technology. Much like stocks now trade digitally, I believe there is potential for homes to trade in a similar fashion, and I believe Zillow is in the best position to make that happen.