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Shares of real estate technology company Zillow Group (ZG 2.07%) (Z 2.22%) fell 16.6% in December, according to data from S&P Global Market Intelligence. Although there wasn’t news specific to Zillow in December, it continues to take a beating from a sour economy, rising interest rates, and the resulting scenario of a real estate market that’s heading south.
Zillow has a strong edge in its dominant position as a leading online real estate platform. It offers solutions in four main categories: buying, selling, financing, and renting.
Zillow had a disastrous 2021 after it shut down its iBuying business in November of last year. Although that put an end to what was a money-losing business, it sank investor confidence and meant many months of restructuring. That was in addition to what was an emerging bear market and overall economic woes.
However, Zillow is still tops at what it does, and it’s been reporting progress in its efforts. Revenue and adjusted EBITDA from continuing operations declined year over year in the 2022 third quarter, but they came in higher than expectations. Unsurprisingly, the mortgage segment was strongly affected, with segment revenue down 63% from last year.
Investors have mixed sentiments about where Zillow is going. On one hand, it’s making good progress in its core businesses and maintains its leading position in its industry. It’s developing new solutions that could generate greater engagement and revenue, such as a service that allows potential buyers to schedule home tours in real time. It has a comfortable cash position, with $3.5 billion in cash and equivalents at the end of the third quarter, which was after $176 million in share buybacks.
On the other hand, the dreary real estate climate will make it hard for Zillow to demonstrate high growth despite its progress.
Zillow stock ended up losing 50% of its value in 2022, but it’s been fairly stable over the past six months, indicating that investors see it as an opportunity right now. Shares trade at a price-to-sales ratio of less than 1, which is incredibly cheap, even in the current market.
That does look like a great value for a top stock, and Zillow has the business and cash to effect a strong turnaround. However, there are several hurdles to overcome before Zillow stock could be expected to rise significantly, notably the real estate market itself, stability in its new structure, and its net losses.
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zillow Group. The Motley Fool has a disclosure policy.
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