Zillow's stock is taking Wall Street by storm

Shares are up 180% in 2013, and could pop again on earnings this week.

By InvestorPlace Nov 4, 2013 12:51PM

File photo of the Zillow Inc. website (© Scott Eells/Bloomberg via Getty Images)By Jeff Reeves


iplogoZillow (Z) stock is soaring in 2013, up about 190% from Jan. 1 thanks to an improving housing market. Subsequently, Zillow earnings have improved too.


The stock could see another pop this week as the company reports third-quarter numbers. Revenue is expected to jump by more than 50%, and while Zillow earnings are forecast to come in negative, the company has surprised Wall Street with two consecutive quarters of profits versus projections for losses.


It's no surprise why the stock has some swagger as home prices continue to rise and home sales remain firm. In September, we learned that the median price of existing homes was up 11.7% year-over-year. And as rates remain at rock-bottom -- with 30-year fixed mortgages going for about 4.2% right now -- there's a good chance Zillow will have some momentum going forward.


But the stock is more than just a story about a housing recovery. Zillow's stock has two very powerful trends going for it right now that make shares much more than just a fad.


For starters, online real estate listing still is in its growth phase on Wall Street. Unlike online travel stocks such as Priceline (PCLN) or Expedia (EXPE), or e-commerce sites like Amazon (AMZN) and eBay (EBAY) that have had more than a decade on public markets, the marketplace is relatively new -- both to consumers and to investors.


However, fewer than 15% of buyers found their home online a decade ago, and now about 40% do. And in addition to the ease of browsing house listings online and a host of other resources on the Web, there is a recent focus on streamlining paperwork and cutting out kinky mortgage lending schemes in the wake of the financial crisis. That means the bar is lower than ever before when it comes to buyers taking control of their real estate transaction.


And bigger-picture, Zillow's data on housing and home prices is increasingly becoming a tool used by policymakers and regulators -- not just homebuyers and real estate agents. Consider that Zillow's CEO got to moderate a discussion on the real estate market and affordable housing with President Obama just a few months ago.


Zillow stock is sure to benefit from the secular trends that are pushing homebuyers to its site and pushing policymakers toward its data.


And given recent Zillow earnings history, it's reasonable to expect plenty of momentum in the short-term based on an improving housing market and increased buyer interest in 2013.


Sure, competition from similar sites like Trulia (TRLA) and Redfin is a risk, and a rough housing market could weigh on the stock down the road.


And a forward price-to-earnings ratio of nearly 150 is a bit rich. Zillow is barely break-even right now, and the fact that Wall Street has forecast losses for the company tells you just how early Zillow is in its life cycle.


But all signs point to Zillow's stock as a front-runner the in digital real estate business. Long-term investors should make sure not to miss out on this trend.


Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not own a position in any of the stocks named here.


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6Comments
Nov 5, 2013 10:50AM
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I thought the data found there was old and incorrect but that is just my experience.
Nov 5, 2013 10:49AM
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Does this make sense? Zillow data is NEVER accurate or timely. In fact, when compared directly to MLS data, it is leading internet zombies completely off-track on home values and availability. Worse off... since it is so inaccurate it leads people to offer excessive amounts for homes that won't appraise as high for a lack of valid comparables. When the lender says you need more down to cover that excess, you blame the lender. Blame yourselves for relying on Zillow instead of genuine professionals.
Keep investing in genuine stupidity that compromises REAL jobs that generate economy. May YOU be the victim now, idiots. 
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