Wager on a Red-Hot 2022 Housing Market with Zillow Group
Sometimes, businesses try things and fail. Investors can be utterly unforgiving of failures, though, and lately Seattle-based Zillow Group (NASDAQ:ZG) has been Wall Street’s whipping boy as ZG stock continues to sink to new short-term lows.
A couple of years ago, Zillow Group attempted to expand into the business of iBuying. This can be described as house-flipping on a mass scale, wherein companies make instant offers for homes, fix them up, and resell them (hopefully) at a profit.
Suffice it to say that Zillow Group’s expansion into iBuying was an unmitigated disaster. As a direct result of its ill-conceived iBuying venture, the company is taking a more than $500 million write-down and is laying off thousands of employees.
However, sometimes disasters can lead to opportunities. As Zillow Group gets back to its core business as a digital real-estate marketplace, and as 2022’s housing market offers red-hot prospects, a powerful recovery may be in the cards.
A Closer Look at ZG Stock
Just for clarity’s sake, Zillow (NASDAQ:Z) is the Class C version of the stock, while ZG/Zillow Group is the Class A version.
It’s no exaggeration to say that 2021 was a rough year for Zillow Group’s long-term investors. There was a quick pop during early 2021’s short-squeeze mania, but that rally didn’t last long.
ZG stock topped out near $212 in February 2021, and it was all downhill from there. By August, the Zillow Group share price had already sunk below the critical $100 level.
The situation got even worse in early November. That’s because Zillow Group officially gave up on iBuying when it issued the company’s earnings press release on Nov. 2.
ZG stock traded for around $96 per share prior to that announcement. Afterwards, the shares quickly fell to the $60s.
Fast-forward to late January of 2022, and the Zillow Group share price is near $50. The last time it was this low was in May of 2020 before a massive bull market took hold.
Winding Down
Could another bull run happen this year? It’s entirely possible, but first Zillow Group will need to shake off its iBuying debacle.
Fortunately, it appears that the company is dusting itself off and moving forward. Indeed, by early December, Zillow Group had already made significant progress in winding down its Zillow Offers iBuying-business inventory.
Specifically, Zillow Group had sold, was under contract to sell, or had reached agreement on disposition terms for more than 50% of the homes it had expected to resell during the entire wind-down process.
In other words, the company had effectively wound down half of its toxic iBuying business. That’s pretty good progress in a short period of time.
Not only that, but Zillow Group authorized a $750 million share repurchase program.
A Seller’s Market
You must admit, only a truly confident company would dare to engage in such a massive buyback program.
Perhaps this level of confidence is warranted. According to Zillow, U.S. home values will increase by 14.3% in the 12 months through November 2022.
Moreover, some real-estate hot spots are poised to grow dramatically in value. For example, homes in Tampa, Florida, are expected in increase 24.6% during the aforementioned time frame.
In Tampa and elsewhere, Zillow’s real-estate experts are bracing for a seller’s market this year.
“Across the board, sellers will remain in the driver’s seat, but especially so in the hottest markets. Buyers should be ready for strong competition for homes,” warned Zillow economist Alexandra Lee.
Other hot markets to watch include Salt Lake City, Kansas City and Oklahoma City, according to Zillow’s experts.
The Bottom Line
If America’s real-estate market heats up as anticipated, Zillow Group’s online marketplace should experience an uptick in traffic.
Of course, there’s no guarantee that Zillow’s predictions will come true. Still, there may be a bottom-fishing opportunity here in ZG stock.
So, perhaps Zillow Group’s investors should be thankful that the company exited the iBuying business. Failures will happen in the markets, and recoveries from those failures can be amazing and very profitable.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
