Why Zillow Inc (Z) Will Get Better

Most of you have probably been to Zillow.com, a website that provides a “Zestimate” or a Zillow Inc (NASDAQ:Z) provided estimate for homes. This service that Zillow provides covers over 100 million homes, townhomes, and condominiums. Zillow does this by operating a unique website and marketplace that is available on the web and on mobile devices. At first, I believed that Zillow was just another technology company that experienced a late boom, but I was wrong.

For many years now, Zillow Inc (NASDAQ:Z) has been fiercely debated in the real estate world because there are mixed views regarding the “Zestimate” that Zillow provides. Some agents complain that it provides inaccurate listings, while others recognize Zillow as a giant forcing them to buy expensive listing contracts. Even though there have been numerous complaints, Zillow has not failed to attract hordes of people, investors, and clients to its extraordinary database. In fact, Citadel recently took a large stake in Zillow.

Below, I will outline why I feel that Zillow is bound to skyrocket. I will also outline why its competitors are of no competition to it.

Growth

In Zillow’s latest earnings release, management stated that they were raising revenue guidance from $165 million to $182 million while consensus was just over $172 million. This is good, but the problem was that advertising led to the increase in revenue which would affect profitability and margins.

During the quarter, 46.6 million unique users came to the site, up 46.7% from 31.7 million users in the year-ago period and up from 34.5 million in the previous quarter. The company reported much higher earnings which pleased investors and Wall Street.

The main reason for Zillow Inc (NASDAQ:Z)’s growth is the fact that it provides it users with multiple tools such as historical pricing, tax information, and multiple photos of the interior and exterior.

Zillow has finally started to tap into the rental property market. For many years, Zillow was focused on just the residential market, but that has changed. Recently, Zillow acquired a company known as HotPads; Zillow should now have a ton of variety in its portfolio as it now has millions of rental properties at the tip of its fingers.

Valuation

When basing Zillow’s valuation solely on its earnings, it would be overvalued. However, earnings are growing rapidly and the market size is extremely large. Zillow currently has about 2% of real estate agents registered with it; however, this can change quickly as real estate agents spend roughly $6 billion annually on advertising. According to Zillow’s current valuation, you could easily determine that Zillow is overvalued, but as you analyze further, the larger picture becomes clearer.