Citi reiterates Buy rating on Zillow stock as Showcase Listings gain traction

Citi reiterated its Buy rating on Zillow Group (ZG), citing robust adoption of Zillow Showcase Listings (ZSLs), which saw a 16% month-over-month increase in June, with estimated June revenue reaching $4.2 million. While Zillow's Q1 results exceeded expectations, its Q2 forecast fell slightly below analyst projections. Despite this mixed financial outlook and broader real estate market volatility, analysts largely maintain positive outlooks, emphasizing Zillow's product investments in ZSLs and the strong performance of its Rentals segment as key drivers for future growth, even as some note the stock trades above fair value.

Analysis

Zillow Group (ZG) is demonstrating tangible progress in its new product initiatives, though this is set against a mixed near-term financial outlook and a volatile housing market. Citi's reiterated Buy rating is underpinned by strong adoption of Zillow Showcase Listings (ZSLs), which grew 16% month-over-month in June to approximately 19,400 total listings. This new product is beginning to show a financial impact, with Citi estimating potential revenue of $4.2 million for June and $11 million for the second quarter. This product momentum complements the company's solid first-quarter performance, where revenue grew 2% and EBITDA surpassed Wall Street expectations by 10%, propelled by its Rentals and Mortgages segments. However, this is tempered by a weaker-than-expected second-quarter forecast, with revenue and EBITDA guidance missing consensus estimates by 1% and 10% at the midpoint, respectively. Analyst sentiment remains largely positive, with firms like JMP Securities and Piper Sandler highlighting a large user base and a strengthening balance sheet, but more cautious ratings from Cantor Fitzgerald cite market volatility as a risk to core residential growth. Furthermore, after a 51.5% appreciation over the past year, valuation is a key consideration, with some signals suggesting the stock is trading above its fair value.

Key Decisions for Investors

• Investors should closely monitor the adoption rates and revenue generation from Zillow Showcase Listings (ZSLs), as this product appears to be a primary catalyst for future growth and a key component of the bullish thesis.
• Given the soft Q2 guidance and concerns about real estate market volatility, it is critical to weigh the company's long-term product innovation strategy against the near-term headwinds that could continue to pressure core business performance.
• Following the stock's significant 51.5% run-up over the past year, investors should consider the current valuation, as some indicators suggest the shares may be fully priced, potentially warranting a trim on strength or patience for a better entry point.