Zillow Group (NASDAQ: ZG) continues to shine bright in the economic recovery landscape, with a promising growth outlook that has captivated investors’ attention. As a journalist covering the company, I previously recommended a buy rating for ZG in May’24 due to the visible growth catalysts on the horizon. Now, I am pleased to provide an update on the business and stock, reaffirming my belief in ZG’s potential for sustained high-teen growth.
Growth Outlook and Market Performance
Zillow Group’s growth outlook has only improved, thanks to a stronger macroeconomic environment. The company’s solid execution in penetrating enhanced markets and enhancing top-of-funnel awareness has been key to its success. The market has indeed recognized ZG’s strong results, evident from the positive movement in its share price.
Financial Performance and Investment Thesis
ZG’s recent 2Q24 earnings report showcased impressive figures, with revenue reaching $572 million, surpassing consensus estimates by 6%. The total revenue grew by 13%, driven by robust performance across various segments, including residential, mortgage, rental, and others. Additionally, ZG’s adjusted EBITDA exceeded expectations, indicating a healthy margin of 23.4%.
The residential segment, in particular, performed exceptionally well, surpassing previous guidance and gaining significant market share. With positive indicators pointing towards a thriving US residential housing market, ZG is well-positioned to capitalize on this growth opportunity in the years ahead.
Enhanced Markets and Rental Growth
Zillow Group’s expansion into enhanced markets has been a strategic move that continues to yield positive results. The company’s progress in penetrating these markets has been ahead of schedule, with revenue growth per transaction value showing a substantial increase. As ZG targets further market penetration, especially in the mortgage segment, continued growth is anticipated.
On the rental front, ZG’s solid performance in delivering consistent growth quarter after quarter reflects the effectiveness of its flywheel model. By adding more housing units and attracting a growing consumer base, ZG is driving sustained growth in its rental segment. With increased investments in brand marketing campaigns, the outlook for rental growth remains promising.
Valuation and Upside Potential
The market’s favorable response to ZG’s recent earnings report is evident in the share price movement, indicating strong investor confidence. Looking ahead, ZG’s long-term revenue target of $5 billion and a 45% margin remains a focal point for investors. With a projected 17% compound annual growth rate (CAGR) through FY29, supported by accelerating growth trends, ZG’s valuation is poised for further upside potential.
Risks and Conclusion
Despite the positive outlook, ZG faces risks such as the ongoing NAR settlement case and potential regulatory challenges. However, the company’s strategic initiatives and market leadership position provide a solid foundation for continued growth. In conclusion, Zillow Group remains a buy, with its recent performance reaffirming its strength in the market. As ZG navigates the evolving economic landscape, its growth trajectory appears robust and promising.
In conclusion, Zillow Group’s growth outlook remains positive, with strong financial performance and strategic initiatives driving its success in the market. As the company continues to capitalize on growth opportunities and solidify its market position, investors can expect sustained value creation and long-term growth potential.
