In March, Zenolytics highlighted Zillow as being one of the best equities to own during the first half of any calendar year, especially in years that saw interest rates decline as they have in 2019.
Fast forward to two months later and Zillow is gathering momentum on the upside, running over critics of its Zillow Homes offering in the midst of rapid revenue acceleration. Fulfilling the promise of another stellar first half performance in 2019 seems the least of its concerns at this juncture.
There are, however, variant perceptions that should be discussed not involving fundamental arguments of the future viability of being a market maker in residential real estate.
One very simple indicator that tells of the extreme disparities in price for Zillow is the ratio in share price between Zillow and Redfin. There is one very simple caveat: If Zillow does truly heat up with Wall Street fully embracing their new business model then it will blow the doors off of any previous acceptable ranges in the ratio between Zillow and Redfin.
This condition aside, under normal trading circumstances this gives an objective view of the values between two of the leading players in the quickly evolving "real estate revolution, brokers are inefficient" business model:
Recently, Zillow's stock price has quickly accelerated while Redfin has languished despite reporting overall growth in their business. Over the next few months this ratio should continue to be observed as Redfin has a number of offerings that adequately create a competitive product to Zillow despite being a fraction of its overall size, especially in the IBuying market.
A rotation at some point away from Zillow into Redfin may be warranted. Stay tuned.
