Zillow's Surge: Analyst Optimism on Growth and Rates Ahead
Recent Upgrades and Stock Performance
Zillow Group, Inc. (NASDAQ: Z) has experienced an uptick in its stock following a positive review from Wedbush, which upgraded the stock from Neutral to Outperform. The firm has also increased its price target from $50 to $80, showcasing the analyst's confidence in the company's future potential.
Impact of Lower Mortgage Rates
The prominent analyst Jay McCanless has noted that lower mortgage rates could significantly benefit Zillow's core brokerage business. This trend has raised expectations for revenue increases, particularly within Zillow’s Strategic and Securities (S&S) revenues that fall under the Residential revenue category. Over the past few quarters, these revenues have shown significant growth compared to national benchmarks.
Third-Quarter Expectations
McCanless has kept the estimates for the third quarter at the high end of Zillow’s guidance for adjusted EBITDA (AEBITDA) and revenue. However, the analyst suggests that the potential benefits from decreased mortgage rates may not be realized by potential buyers until later in the year.
Yearly Revenue Growth Projections
For the fiscal year 2025, the revenue estimate has been adjusted upwards to $2.5 billion, up from a previous estimate of $2.4 billion. The AEBITDA estimate has also seen an increase to $679 million, compared to the earlier $600 million forecast.
Segment-Specific Adjustments
McCanless has enhanced the growth projections for various segments in FY25, specifically estimating a 17% growth for Residential revenue and a 10% increase in Rental revenue. This growth is attributed to sustained rental demand and robust construction activities. Conversely, the operating expenses to sales ratio has been lowered to 77%, aligning with the anticipated higher revenue.
Mortgage Revenue Outlook
Projected mortgage revenue is expected to grow by 5% year-over-year. Nevertheless, there remains an upside risk if Residential revenue grows as anticipated, highlighting favorable market conditions.
Investment Opportunities
Investors looking to capitalize on these positive trends can consider gaining exposure through the Global X PropTech ETF (NASDAQ: PTEC) and Jacob Funds Inc. Jacob Forward ETF (NYSE: JFWD). These funds provide pathways to engage with the growing real estate technology sector.
Current Price Movement
As of the latest updates, shares of Zillow (Z) have risen 4.84%, trading at approximately $62.63. This positive movement reflects the market's response to the promising forecasts surrounding lower mortgage rates and elevated revenue expectations.
Frequently Asked Questions
What is Zillow Group, Inc.?
Zillow Group, Inc. is an online real estate marketplace that provides information and tools for buying, selling, and renting properties.
Why has Zillow's stock recently increased?
The stock has gained due to a positive analyst upgrade and the anticipation of favorable conditions resulting from lower mortgage rates.
What are the revenue growth estimates for Zillow?
For FY25, revenue estimates have been adjusted to $2.5 billion, with specific segments like Residential projected to grow by 17%.
How does mortgage revenue affect Zillow?
Increasing mortgage revenue contributes to Zillow's overall financial performance, reflecting demand in the housing market.
Which ETFs offer exposure to Zillow's growth?
Investors can consider Global X PropTech ETF (PTEC) and Jacob Funds Inc. Jacob Forward ETF (JFWD) for exposure to Zillow's potential growth and developments in the PropTech sector.
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