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Is Zillow A Good Buy After Dropping 25% In Value?

After crashing out of the iBuying game, Zillow has seen its stock price plummet, but could it be an opportunity for sharp-eyed investors?

You’ve likely heard the story by now: Zillow (NASDAQ: Z) plans to exit the home-flipping business, things just weren’t working out, and the stock price plummets. 

Makes sense I guess, but is there an opportunity here for the bulls among us?

Zillow actually made the right call!

Might be strange to think that any decision which causes you to lose a quarter of your value overnight could be a good one, but just hear me out. 

The formation of Zillow Offers has been costly, and management has been pretty upfront about why it’s winding down, as according to CEO Rich Barton:

“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility. While we built and learned a tremendous amount operating Zillow Offers, it served only a small portion of our customers. Our core business and brand are strong, and we remain committed to creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers while serving a wider audience.” 

Fair enough. Management is willing to take the hit, admit the mistake, bring on board some learnings, and move on before home-flipping debts crippled the firm. 

And, let’s not forget that Zillow was a very successful, billion-dollar advertising business before it got embroiled in iBuying back in 2019. Its core marketplace continues to grow and produce cash, with Zillow’s internet, media and technology business growing revenue by 16% in the quarter to $480 million, with gross profit of just over $130 million.

With its valuation almost halved year-to-date, this marks the company’s cheapest buy-in opportunity since July 2020, and if you’re bullish on the business, it may be just what you’re looking for.

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