$Z is for Zillow
Written by: Eric Chavez (MTTS Administrator)
Background:
Zillow Group Inc. based in Seattle, Washington is a major online competitor in real estate/construction operating as Real Estate Developers with $846.59 million in sales revenue with three classes of shares A, B, and C. $Z operates under the C class of shares with $122.04 million shares outstanding, and with a Public Float of $104.08 million. According to WSJ (2017) as of 7/31/17 $Z has a current short float of 14.91% or $15.52 million shares short with a market cap of over $7 billion.
Legal Trouble:
$Z has constantly been under a barrage of legal investigations into the organization’s business practices which have been accused of damaging the real estate market. One such legal victory for the company includes the dismissal of a lawsuit on August 23, 2017 in federal court in Chicago first brought in May 2017 by disgruntle homeowners who challenged the accuracy of its home value “Zestimate” tool (Beals, 2017). This tool alleged to use the website’s pricing tool to create gross undervaluation of the value of the plaintiff’s (i.e., party injured by defendant’s actions) property. However, Zillow Group was able to show that this free tool which provides measures to track the accuracy of “Zestimates” algorithims do not lead to misrepresentation of home values for consumers. The judge in his final ruling noted that “Z estimates are not false, misleading, or likely to confuse…Zestimates are merely an estimate of the market value of a property” (Beals, 2017).
However, other lawsuits Zillow Group has faced have not met the same fate, such as the $8.3 million in damages paid to VHT Inc in United States District Court in Seattle over copyright infringement originally filled in July 2015 which settled in February 2017. The lawsuit states that Zillow Digs (ie., website to create interior/exterior design ideas/estimates) used copyright protected photography owned by VHT on their website without approval or royalty payments to VHT by Zillow Group for the use of its copyrights.
Earnings Forecast:
Zillow Group in Quarter 2 Earnings of August 8th reported a net loss of $21.8 million (i.e., Loss of 12 cents per share) vs. the consensus of 16 cent loss per share. The total revenues for Quarter 2 of 2017 reported total revenues of $267 million vs. $263 million forecasted. Operating metrics indicated that revenues from Mortgages was in line with $20.9 million vs. $20.9 million , while revenues from the total marketplace was actual $248.6 million vs. estimated $244.5 million equal to 1.66% surprised beat from expectations.
Credit Rating Analyst:
The parent company of $Z class C shares of Zillow is $ZG Class A shares which has a Reduce Rating by the Research Team (Updated 8/25/17), Hold Rating by The Street (Updated 8/19/17) , and Avoid Rating by Market Edge (updated 8/24/17).
Technical Analysis:
The 1 year daily chart above provided indicates a breakdown of the imperfect symmetrical triangle on August 8th following the post earnings sell-off. The lower blue line is created from the low around the $32 price in April rising up to create support which was tested and failed below $41 dipping below $40.
The upper descending line is drawn from the high in late June of $51.23 and creates lines of descending resistance which was tested in early August at $48 which failed to break higher leading to a breakdown in the general upward movement and projection of the stock.
The breakdown from the highs in August showed that $Z’s earnings were not enough to sustain the upward momentum of the stock leading to a sell off in the stock indicated by the breakdown of the chart to hold above resistance levels of $48 leading the stock to drop and continue lower this week.
This chart shows that $Z is currently trading below all major simple moving averages (i.e., 20 day, 50 day, 200 day), but the $36-$37 range provides an optimal support line for buyers (i.e., retailer and institutional investors) to load up stock known as the “demand load zone”
Target 1: $41
Target 2: $43.50
Target 3: $46.50
Long Term Target: $51
Stop: $35.50
Sources:
Beals, R. (2017, May 23). Do Zillow ‘Zestimates’ mislead home buyers? Lawsuit claims yes . Retrieved from
marketwatch.com: http://www.marketwatch.com/story/do-zillow-zestimates-mislead-home-buyers-illinois-
lawsuit-claims-yes-2017-05-22
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