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Is Zillow Group a Buy Under $60?

Stock MarketsNov 30, 2021 11:30AM ET
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© Reuters. Is Zillow Group a Buy Under $60?

The online real-estate firm Zillow (Z) recently announced its plans to shut its iBuying unit. Z’s shares plummeted in price following the report and are currently trading at less than $60. Also, because the historic run in U.S home prices is beginning to lose some steam, Z is now grappling with several challenges and low-profit margins. So, will the real estate giant be able to reverse its losses and strengthen its bottom line anytime soon? Read on to learn our thoughts.Digital real estate company Zillow Group (NASDAQ:ZG), Inc. (Z), which is headquartered in Seattle, Wash., operates real estate brands on mobile applications and websites in the United States. It operates through three segments: Homes; Internet, Media & Technology; and Mortgages. Z's shares have declined 57.2% in price year-to-date and 41.7% over the past month to close yesterday's trading session at $54.26. The stock is currently trading well below its 50-day and 200-day moving averages, near its 52-week low.

The stock plunged 25% on November 3, after the company announced plans to exit the home-flipping business because of an inability to predict housing prices accurately. "We determined that further scaling up Zillow Offers is too risky, too volatile to our earnings and operations, too low of a return on equity opportunity, and too narrow in its ability to serve our customers," CEO Rich Barton said. Furthermore, supply chain bottlenecks and the high costs have chipped away Z's margins.

The company reported a $328.17 million third-quarter net loss, attributable mainly to its iBuying unit. The iBuying, or instant buying, unit allowed homeowners to sell their homes to Z for cash, eliminating the lengthy processes typically associated with such sales. The company further expects to incur losses of no more than $240 million, and $265 million in write-downs in the fourth quarter, tied to inventory it has already agreed to purchase. KeyBanc analyst Edward Yruma's research note states that two-thirds of the homes owned by Z are currently worth less than what the company paid for them.

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Is Zillow Group a Buy Under $60?
 

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