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Zillow Stock a Strong Buy on Its Recent Dip

Online real estate portal Zillow (Z) has been in the news a lot this week, what with its planned acquisition of New York City-based StreetEasy and the recent news it will be pricing a follow-on offering of Z stock at $82 a share.

In the short-term, there certainly has been some volatility for Zillow with Z stock down about 13% in the past week. But long-term, it’s hard to argue that the future is not firmly in the hands of Zillow and similar sites like Trulia (TRLA), ZipRealty (ZIPR) and privately held Redfin.

Just look at the stock performance, for starters. Z stock had its IPO in 2011 at $20 a share, and has more than quadrupled from that price. More recently, Zillow stock has soared from about $28 to start the year to above $80 a share. Trulia had an IPO much more recently, pricing at $17 a share less than a year ago and soaring to current levels around $43.

Next, look at earnings. Trulia stock just gapped up big-time after earnings on a narrower-than-expected loss, and excluding one-time charges, Zillow posted a mere 1-cent loss per share vs. expectations of an 11-cent loss.

This boom in Z stock and Trulia is partially because of the resurgent real estate market, yes, but it’s more than that. Real estate sites like Trulia and Zillow provide a wealth of information to buyers and sellers, and ultimately save everyone time and money.

BusinessWeek ran this graphic a few months ago, and I think it tells the entire story. Since 2001, the number of homebuyers who have found their property online as opposed to via a real estate agent has exploded — and since 2009, the majority of homebuyers have used the Internet to find their property.

z stock redfin zillow sales

Z Stock and TRLA: Right Place, Right Time

This kind of digital disruption is not new, with (AMZN) shaking up retail and (PCLN) messing up conventional travel agencies over the last decade or so. More recently, LinkedIn (LNKD) has taken the online job hunt to a new level and streaming businesses of Netflix (NFLX) and Pandora (P) are well on their way to disrupting entertainment.

Why not real estate, reshaped at the hands of Zillow, Trulia and others?

This is not to say that real estate agents are a dying breed. Z stock may continue to go up without putting all Realtors out of work, because a good agent is worth their weight in gold because of the knowledge and customer service they provide.

But online real estate shopping is far from a fad. Z stock and Trulia shares prove this — and I remain convinced that long-term, they are in the right place at the right time.

If you’re an investor looking for the next big thing in tech … well, these stocks might be it. And given the recent softness in Z stock after some negative Zillow news, this could be a buying opportunity.

Related Reading on Z Stock and Trulia

Disclosure: As of this writing, Jeff Reeves was long Pandora but no other stocks named here.

Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him or follow him on Twitter via @JeffReevesIP.

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