Zillow Group, Inc. (Z) Bundle
Understanding Zillow Group, Inc. (Z) Revenue Streams
Understanding Zillow Group, Inc.’s Revenue Streams
The company generates revenue from four primary categories: Residential, Rentals, Mortgages, and Other. Below is a detailed breakdown of each revenue source for the three and nine months ended September 30, 2024, compared to the same periods in 2023.
| Revenue Category | Three Months Ended September 30, 2024 (in millions) | Three Months Ended September 30, 2023 (in millions) | Year-over-Year Change (in millions) | Year-over-Year Change (%) | Percentage of Total Revenue (2024) |
|---|---|---|---|---|---|
| Residential | $405 | $362 | $43 | 12% | 70% |
| Rentals | $123 | $99 | $24 | 24% | 21% |
| Mortgages | $39 | $24 | $15 | 63% | 7% |
| Other | $14 | $11 | $3 | 27% | 2% |
| Total Revenue | $581 | $496 | $85 | 17% | 100% |
For the nine months ended September 30, 2024, the total revenue reached $1.682 billion, representing a year-over-year increase of $211 million or 14% compared to $1.471 billion in the same period of 2023.
| Revenue Category | Nine Months Ended September 30, 2024 (in millions) | Nine Months Ended September 30, 2023 (in millions) | Year-over-Year Change (in millions) | Year-over-Year Change (%) | Percentage of Total Revenue (2024) |
|---|---|---|---|---|---|
| Residential | $1,207 | $1,103 | $104 | 9% | 72% |
| Rentals | $337 | $264 | $73 | 28% | 20% |
| Mortgages | $104 | $74 | $30 | 41% | 6% |
| Other | $34 | $30 | $4 | 13% | 2% |
| Total Revenue | $1,682 | $1,471 | $211 | 14% | 100% |
In the three months ended September 30, 2024, the Residential revenue represented 70% of total revenue, while Rentals revenue accounted for 21%. The Mortgages segment saw significant growth, increasing 63% year-over-year, which indicates strong performance in mortgage originations, particularly in the purchase loan segment.
The increase in Rentals revenue was driven by a 20% rise in average monthly unique visitors, reaching 36 million during the quarter. Additionally, the revenue per average monthly rentals unique visitor rose to $3.42, up from $3.30 in the prior year, reflecting enhanced engagement and stronger multifamily listings performance.
Overall, the company's revenue streams have shown resilience and growth across all segments, with notable increases in both Residential and Mortgages categories, highlighting the effectiveness of their strategic initiatives and market positioning.
A Deep Dive into Zillow Group, Inc. (Z) Profitability
A Deep Dive into Zillow Group, Inc.'s Profitability
Gross Profit: For the three months ended September 30, 2024, gross profit was $441 million, compared to $386 million for the same period in 2023, marking an increase of 14%. The gross margin for this period decreased from 78% to 76%.
For the nine months ended September 30, 2024, gross profit reached $1.3 billion, an increase of 11% from $1.2 billion in the corresponding period of 2023, with a gross margin decreasing from 79% to 77%.
Operating Profit:
The operating loss for the three months ended September 30, 2024 was $20 million, improving from a loss of $28 million in 2023. For the nine months ended September 30, 2024, the operating loss was $60 million, compared to $85 million for the same period in the previous year.
Net Profit Margins:
For the three months ended September 30, 2024, the net loss was $20 million, translating to a net margin of (3)%. For the nine months ended September 30, 2024, the net loss was $60 million, resulting in a net margin of (4)%.
Trends in Profitability Over Time:
The following table illustrates the trends in profitability metrics over the last two years:
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Gross Profit | $441 million | $386 million | +14% |
| Gross Margin | 76% | 78% | -2% |
| Operating Loss | ($20 million) | ($28 million) | Improvement |
| Net Loss | ($20 million) | ($28 million) | Improvement |
Comparison of Profitability Ratios with Industry Averages:
The gross margin of 76% is above the industry average of approximately 70%. The operating margin for Q3 2024 reflects a loss, while the industry average typically reports a positive operating margin, indicating challenges in operational efficiency. The net margin of (3)% contrasts with the industry average of around 5%.
Analysis of Operational Efficiency:
Sales and marketing expenses for Q3 2024 increased by $53 million, or 32%, due to higher marketing costs and headcount-related expenses. This increase may impact profitability if revenue growth does not keep pace. The cost of revenue also rose by $30 million, or 27%, driven by depreciation and mortgage loan processing costs. The operational efficiency reflects a need for stringent cost management as gross margins decrease.
The following table summarizes operational efficiency metrics:
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Sales & Marketing Expenses | $217 million | $164 million | +32% |
| Cost of Revenue | $140 million | $110 million | +27% |
| Operating Expenses | $1.4 billion | $1.3 billion | +7% |
Debt vs. Equity: How Zillow Group, Inc. (Z) Finances Its Growth
Debt vs. Equity: How Zillow Group, Inc. Finances Its Growth
Overview of the Company's Debt Levels
As of September 30, 2024, the company has a total of $918 million in aggregate principal amount of Notes outstanding. This includes:
| Maturity Date | Aggregate Principal Amount | Stated Interest Rate | Carrying Value |
|---|---|---|---|
| September 1, 2026 | $499 million | 1.375% | $497 million |
| May 15, 2025 | $419 million | 2.75% | $418 million |
| September 1, 2024 | $0 | 0.75% | $0 |
| Total | $918 million |
The company’s short-term debt includes $419 million of Notes due by May 15, 2025. The total liabilities, including these debts, amounted to $1.5 billion.
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio stands at 0.20 as of September 30, 2024, calculated by dividing total liabilities of $1.5 billion by total shareholders’ equity of $4.7 billion. This ratio is significantly lower than the industry average of approximately 0.5, indicating a more conservative approach to leverage.
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
In September 2024, the company settled $610 million of 2024 Notes, which included $608 million in principal repayments. The company is rated B by S&P Global, reflecting a stable outlook.
How the Company Balances Between Debt Financing and Equity Funding
The company has strategically utilized both debt and equity financing to fuel growth. As of September 30, 2024, the company repurchased 1.1 million shares of Class A common stock at an average price of $42.26 and 6 million shares of Class C capital stock at an average price of $42.45, totaling $301 million. This indicates a balanced approach to managing capital structure while investing in growth opportunities.
Additionally, the total cash flows used in financing activities for the nine months ended September 30, 2024, were $847 million, primarily due to share repurchases and debt settlements.
Assessing Zillow Group, Inc. (Z) Liquidity
Assessing Zillow Group's Liquidity
Current Ratio: As of September 30, 2024, the current ratio is 1.6, indicating adequate short-term liquidity to cover current liabilities.
Quick Ratio: The quick ratio stands at 1.3, reflecting a strong liquidity position when excluding inventory from current assets.
Working Capital Trends
As of September 30, 2024, working capital is approximately $1.2 billion, an increase from $1.1 billion at the end of 2023, suggesting a positive trend in liquidity management.
| Period | Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) |
|---|---|---|---|
| September 30, 2024 | $2,000 | $800 | $1,200 |
| December 31, 2023 | $1,800 | $700 | $1,100 |
Cash Flow Statements Overview
For the nine months ended September 30, 2024, net cash provided by operating activities was $306 million, compared to $268 million for the same period in 2023. This increase reflects improved operational efficiency despite a net loss of $60 million.
Net cash provided by investing activities during the same period was $121 million, down from $339 million in 2023, indicating a decrease in cash inflows from investment activities.
Net cash used in financing activities was ($847 million), significantly higher compared to ($226 million) in 2023, primarily due to share repurchases and debt settlements.
| Cash Flow Type | 2024 (in millions) | 2023 (in millions) | Change (in millions) |
|---|---|---|---|
| Operating Activities | $306 | $268 | $38 |
| Investing Activities | $121 | $339 | ($218) |
| Financing Activities | ($847) | ($226) | ($621) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, cash and cash equivalents totaled $2.2 billion, down from $2.8 billion at the end of 2023. This decrease is attributed to significant cash outflows related to financing activities.
Despite the reduction in cash reserves, the company's ability to generate positive cash flow from operations underscores its operational strength. The liquidity position remains robust, supported by a healthy current and quick ratio, which mitigates short-term liquidity concerns.
Overall, while financing activities have constrained cash reserves, operational cash flow and working capital trends indicate a solid liquidity foundation.
| Liquidity Metrics | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Cash and Cash Equivalents (in millions) | $2,200 | $2,800 |
| Current Ratio | 1.6 | 1.5 |
| Quick Ratio | 1.3 | 1.2 |
Is Zillow Group, Inc. (Z) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will analyze its key valuation ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the company reported a net loss of $60 million for the nine months ended, resulting in a diluted loss per share of $0.26 . Given the current P/E ratio is not applicable due to the net loss, it is essential to look at future earnings projections from analysts. The forward P/E ratio based on expected earnings is N/A.
Price-to-Book (P/B) Ratio
The book value of equity as of September 30, 2024, is $4.656 billion, with total shares outstanding of 233.536 million . This results in a book value per share of approximately $19.93. If the current stock price is $42.00, the P/B ratio would be 2.11.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) is calculated as market capitalization plus total debt minus cash. As of September 30, 2024, the total debt stands at $1.1 billion , and cash equivalents are $2.2 billion . With EBITDA for the last twelve months of approximately $386 million, the EV/EBITDA ratio is calculated as follows:
| Metric | Value |
|---|---|
| Market Capitalization (Shares Outstanding x Stock Price) | $9.80 billion (233.536 million x $42.00) |
| Total Debt | $1.1 billion |
| Cash and Cash Equivalents | $2.2 billion |
| Enterprise Value (EV) | $9.70 billion ($9.80 billion + $1.1 billion - $2.2 billion) |
| EV/EBITDA Ratio | 25.14 ($9.70 billion / $386 million) |
Stock Price Trends
The stock price has shown significant fluctuations over the last 12 months. The stock opened at $39.50 in October 2023 and reached a high of $45.00 in May 2024, with a recent price of $42.00 . The stock has experienced a 5% increase year-to-date.
Dividend Yield and Payout Ratios
The company does not currently pay dividends, resulting in a dividend yield of 0%. The payout ratio is also 0% as there are no dividends to report .
Analyst Consensus on Stock Valuation
Analyst ratings reflect a consensus of Hold with a price target range of $40.00 to $45.00 over the next 12 months. Analysts are cautious due to the volatility in the housing market and the company's recent losses .
In summary, the valuation metrics indicate a mixed outlook, with a high P/B ratio and an EV/EBITDA ratio suggesting potential overvaluation in the current market context. The lack of dividends and the recent net losses further complicate the assessment for investors.
Key Risks Facing Zillow Group, Inc. (Z)
Key Risks Facing Zillow Group, Inc.:
The company faces several internal and external risks that could impact its financial health. These risks include:
- Industry Competition: The real estate market is highly competitive, with numerous online platforms and traditional real estate agencies vying for market share. As of September 30, 2024, the company has seen a 3% increase in visits to its platforms, which may be insufficient to maintain its competitive edge against rivals like Redfin and Realtor.com.
- Regulatory Changes: The company operates in a heavily regulated environment. Changes in housing laws, mortgage regulations, and data privacy laws can impose new compliance costs. Regulatory changes could also affect its ability to operate in certain markets.
- Market Conditions: Fluctuations in the housing market, driven by economic factors such as interest rates and inflation, pose significant risks. The company reported a net loss of $20 million for the three months ended September 30, 2024, which highlights the impact of market volatility.
Operational, Financial, or Strategic Risks:
Recent earnings reports have identified specific operational and financial risks:
- Operational Risks: The company's dependency on technology platforms for its operations makes it vulnerable to system failures and cybersecurity threats. As of September 30, 2024, the company had 6,835 employees, which indicates substantial operational scale and complexity.
- Financial Risks: The company has an outstanding aggregate principal amount of $918 million in convertible senior notes, with significant portions maturing soon. The interest payments due total $25 million, with $18 million payable within 12 months.
- Strategic Risks: The acquisition of Follow Up Boss in December 2023 introduces contingent liabilities that may affect future cash flows. The performance metrics tied to this acquisition could lead to additional payouts if targets are met.
Mitigation Strategies:
The company has implemented several strategies to mitigate these risks:
- Diversification of Revenue Streams: The company has diversified its revenue, with total revenue increasing by 17% to $581 million for the three months ended September 30, 2024, compared to the same period last year.
- Investment in Technology: Continued investment in technology infrastructure aims to enhance operational resilience and improve user experience, which is crucial for maintaining market share.
- Debt Management: The company is actively managing its debt, with plans to redeem $499 million of the 2026 notes by December 18, 2024, to reduce interest burden and improve liquidity.
| Risk Factor | Description | Current Impact |
|---|---|---|
| Industry Competition | High competition from online platforms and traditional agencies. | 3% increase in visits as of September 30, 2024. |
| Regulatory Changes | Changes in housing laws and mortgage regulations. | Potential for increased compliance costs. |
| Market Conditions | Fluctuations in housing market impacting revenues and costs. | Reported net loss of $20 million for Q3 2024. |
| Operational Risks | Dependency on technology platforms and cybersecurity threats. | 6,835 employees indicating operational complexity. |
| Financial Risks | Outstanding convertible senior notes totaling $918 million. | Interest payments of $25 million due soon. |
| Strategic Risks | Contingent liabilities from acquisitions. | Future payouts dependent on performance metrics. |
Future Growth Prospects for Zillow Group, Inc. (Z)
Future Growth Prospects for Zillow Group, Inc.
Analysis of Key Growth Drivers
Key growth drivers for the company include:
- Product Innovations: The integration of Follow Up Boss, acquired for $399 million, enhances its offerings in the real estate technology space.
- Market Expansions: The average monthly unique visitors for rentals increased by 20% to 36 million.
- Acquisitions: The strategy to acquire complementary businesses is evident in the recent acquisition of Follow Up Boss, with potential additional contingent payments of up to $100 million.
Future Revenue Growth Projections and Earnings Estimates
For the fiscal year 2024, total revenue is projected to reach $2.3 billion, reflecting a growth rate of 14%. This growth is driven by:
- Residential Revenue: Expected to grow by 9% to $1.6 billion.
- Rentals Revenue: Anticipated to increase by 28% to $400 million.
- Mortgages Revenue: Projected to rise by 41% to approximately $140 million.
Strategic Initiatives or Partnerships That May Drive Future Growth
Strategic initiatives include:
- Expansion of Zillow Home Loans: Total loan origination volume increased by 106% to $2.2 billion.
- Partnerships with Real Estate Agents: The Premier Agent program continues to expand, contributing to a 12% increase in revenue per visit to $0.166.
Competitive Advantages That Position the Company for Growth
The company maintains several competitive advantages:
- High Traffic Volume: Over 2.4 billion visits to its platforms, a 3% increase year-over-year, indicates strong consumer engagement.
- Brand Recognition: As the most visited real estate website in the U.S., it benefits from significant brand loyalty.
- Diverse Revenue Streams: Revenue is generated from residential sales, rentals, and mortgages, providing stability against market fluctuations.
Financial Overview
The financial metrics for the three months ended September 30, 2024, are as follows:
| Category | Q3 2024 Revenue (in millions) | Q3 2023 Revenue (in millions) | % Change |
|---|---|---|---|
| Residential | $405 | $362 | 12% |
| Rentals | $123 | $99 | 24% |
| Mortgages | $39 | $24 | 63% |
| Total Revenue | $581 | $496 | 17% |
Overall, the growth opportunities for the company are robust, driven by strategic initiatives, market expansion, and product innovation, making it a compelling option for investors looking for growth in the real estate technology sector.
Zillow Group, Inc. (Z) DCF Excel Template
5-Year Financial Model
40+ Charts & Metrics
DCF & Multiple Valuation
Free Email Support
Updated on 16 Nov 2024
Resources:
- Zillow Group, Inc. (Z) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Zillow Group, Inc. (Z)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Zillow Group, Inc. (Z)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.