Guggenheim Stays Neutral On Zillow Group After 'Strong' November

Zillow Group ZG's new business unit that partners with local brokerages and agents to buy and sell homes saw a "strong" November and is tracking inline with management's prior guidance, according to Guggenheim.

The Analyst

Guggenheim Partners' Jake Fuller maintains a Neutral rating on Zillow Group with no assigned price target.

The Thesis

Zillow Group bought 116 homes in the four markets it operates in throughout November and was also seller of 49 units, Fuller said in a note. The company has sold 78 homes in the fourth quarter for $22 million, which is in line with management's prior segment guidance of $20 to $30 million. Fuller said the current pipeline of pending transactions and active listings implies $109 million of potential revenue.

Since the launch of the new segment, the analyst's first-hand checks and research of 110 completed transactions shows Zillow Group paid $31 million (average of $282,100) and received $32.1 million with an average holding period of 64 days. On average, the company saw a 3.4 percent price appreciation although the company also collects revenue through a seller's fee of 6 to 9 percent, which implies the company could be making $26,000 to $35,000 on average per home before renovation and holding costs.

Zillow Group also indicated, however, it's running the business near break-even on a per transaction basis and assuming $50 to $60 million of fixed costs for the unit the company needs to sell around 1,000 homes per month to break-even. Fuller said while activity for the unit is ramping after a strong November, volumes so far are "far from that sort of level" needed to reach profitability on a per unit basis.

Price Action

Shares of Zillow Group were trading down about 1.6 percent at 435.18 Monday afternoon.

Related Links:

The Street's Mixed Reaction To Zillow's Q3, One Analyst Says 'Game Over'

Bank Of America: Zillow Falls On 'Concerns About Homes, Entry Into Originations'