This stock has seen major swings thanks to a challenging housing market. This options trade protects from volatility

Zillow Group, having exited its unprofitable iBuying segment which resulted in $590 million in losses in late 2021, is now poised for a significant financial turnaround, with Street expectations for its upcoming Q3 earnings (due October 30) projecting a record $105.6 million in adjusted net income and company guidance of $150-$160 million in adjusted EBITDA. Analysts anticipate approximately 30% year-over-year net income growth for FY2026, bolstered by over $1 billion remaining in its share buyback program. This optimistic outlook for Zillow's core business comes despite a challenging residential housing market marked by short supply and low affordability.

Analysis

Zillow Group (Z, ZG) is poised for a significant financial turnaround, with sell-side consensus anticipating a record $105.6 million in adjusted net income for the quarter ended September 30, supported by company guidance of $150-$160 million in adjusted EBITDA. This marks a substantial recovery following the $590 million losses incurred in the second half of 2021 from its discontinued iBuying segment.

Analysts are forecasting robust growth into FY2026, expecting approximately 30% year-over-year net income growth, with an even greater impact on adjusted EPS due to an active share buyback program. The company retains over $1 billion for buybacks, representing about 5.8% of its current market capitalization, which provides significant potential support for shares.

This optimistic outlook persists despite a challenging residential housing market characterized by short supply, low affordability, and stretched consumers, which could temper growth. The stock has shown volatility, currently trading around $70 after rallying to the mid/high $80s and falling from a 25% jump post-earnings a year ago.

The options market reflects this volatility, with a December 60/80 strangle trading for approximately $4, or 5.7% of the current stock price. This implies breakeven points roughly 20% above and below the current level, suggesting expectations for significant price movement around the upcoming October 30 earnings report.

Key Decisions for Investors

• Closely monitor Zillow's Q3 earnings report on October 30 for confirmation of record adjusted net income and EBITDA, validating the company's turnaround
• Evaluate the company's FY2026 growth outlook and the impact of its $1 billion share buyback program on future EPS and share price support
• Remain cognizant of persistent residential housing market challenges, as these macro factors could temper Zillow's growth trajectory
• Consider the implied volatility reflected in options pricing, such as the December 60/80 strangle, for potential strategic positioning around the earnings event