Zillow (NASDAQ: Z) used to be primarily a marketing platform for real estate agents to market and sell their listings. It has grown to be the “go-to” hub for real estate agents, homebuyers, home sellers, renters, and rental owners alike. So, is Zillow a good stock to buy?
In 2019, Zillow released “Zillow Offers” – its new service for buying your home for cash. This service now makes up a large portion of Zillow's revenue and further confirms that Zillow may be a great long term investment. Here's why I think Zillow is a potential “Tenbagger” investment.
Three Reasons To Invest In Zillow
Aside from its stark new product Zillow Offers, Zillow has phenomenal financials, a first-mover advantage, and a “blue ocean” product with little competition.
You might be wondering what is a “blue ocean” opportunity? It's a common metaphor used to illustrate that a company is operating in waters where “sharks” (other businesses) haven't yet hunted for prey. Thus, the waters are blue and not red with blood. In short, they are operating in a new and growing market.
A Growing Home Flipping Business
Zillow gives individuals who are selling their homes the opportunity to sell to Zillow for a cash offer so they don't have to go through the hassle of selling it themselves. After Zillow appraises the house, looks at comparable sales in the area, and does a quick overview to determine its value, it will offer you a fair price with the opportunity to close in just days.
The benefit to the seller is that they don't have to deal with lengthy sales processes and costly real estate agents to get their home sold. This new service offered by Zillow generated a whopping $1.37 billion in revenue in 2019 alone. That's over one-third of its total revenue!
Zillow's year over year quarterly revenue growth is roughly 28% as of this writing. It has a large amount of cash on hand, sitting at $3.54 billion, to be exact. It has even less debt at just $2.24 billion.
Having more cash than debt is a great sign that a company has their finances under control.
Furthermore, it's twelve-month operating cash flow sits at approximately $454.27 million with a whopping $502.35 million of levered free cash flow.
What does all this spell? Respectively, it means that Zillow has a popular product that its customers love, enough cash to weather any market conditions, even less debt to worry about, and half a billion in extra cash to use as they see fit to grow the company.
First Mover Advantage
Companies with a first-mover advantage tend to perform better than the competition. Sure, there are smaller companies that offer similar services. The problem is that all of these services must be done separately.
That problem now has a solution with Zillow's platform. It solves the inconvenience of using multiple services to list, sell, buy, or even finance your home. How? Zillow provides all these services in one convenient location. To my knowledge, Zillow is the only platform to have a convenient, all-in-one solution that is worth using.
Does this spell “Tenbagger” to you?
If you're a fan of Peter Lynch, you'll understand the terminology “tenbagger.” It just means getting a 10x return on your investment.
Here's the short version. Zillow recently launched an extremely popular product – Zillow Offers – that now makes up for more than a third of its revenue in roughly a year of its launch date. Its revenues are growing at an accelerated speed. It has tons of cash on hand, little debt, and half a billion in levered free cash flow. For me, Zillow is a long term buy!