We initiate ZG with a Hold, $77 PT. Zillow Group is the leading suite of U.S. digital real estate platforms for home sales, rental, and mortgage originations.
Our thesis: Revenues are growing ahead of The street on AI-enabled platform improvements, new partnerships, and strong rental momentum, but shares have largely priced in this upside.
We model FY25E revenues of $2.62 bn (+17.2% y/y) and FY26E revenues of $3.14 bn (+20.1% y/y), ahead of The street, supported by Enhanced Market adoption and Premier Agent & Home Loans cross-sell traction, now 70% in target markets.
However, at 6.9x NTM EV/Sales, a premium to both historical and peer averages, and our PT multiple of 5.6x NTM, rerating risk is elevated.
What makes this an attractive investment idea: Management is executing ahead of The street on growth, but valuation limits upside vs. risk of a multiple reset.
Bottom line: Operating outlook is strong, but R/R is balanced at current levels; our $77 PT provides a floor for a volatile stock.
Regulatory/Commission Structure Risk: Unquantifiable, But Material, Headwind
Supply/demand somewhat balanced: Zillow Rentals segment showing real momentum, but pathway from top-line acceleration to outsized S/H upside more nuanced than headline growth would imply.
For the most recent quarter, Rentals revenue hit a record $129mn (+33% y/y), and management now expects ~40% Rentals revenue growth for FY25E (and Q2 revenue run-rate accelerating to 35%+ y/y growth as of Q2), led by multifamily revenue +47% y/y and a leap in property count (by 38% y/y to 55K multifamily properties at quarter-end; 60K as of early May).