Since it was founded in 2006 by a few former Microsoft executives, Zillow Group (ZG) has become synonymous with real estate, asserts Todd Shaver, growth stock specialist and editor of The Bull Market Report.

The company’s core business involves selling listings and premium advertising to realtors, along with add-on services, which makes-up the bulk of its revenues. But over the past few years, Zillow has been expediting efforts to own the entire real estate value-chain.

This includes Zillow Offers, an instant buying service, which homeowners can use to sell their properties directly to Zillow, without long wait times.

Zillow plans to buy 5,000 homes per month within the next 3 to 5 years, and expects to generate $20 billion a year in revenues from this segment alone. At the moment, it is receiving a request from sellers every 5 minutes.

It also wants to scale up loan origination and mortgages to 3,000 per month, with an average of $200,000 each, resulting in revenues of over $7 billion, making them at parity with major mid-market mortgage lenders.

Results in the latest quarter were strong: revenue of $1.3 billion, up 70% YoY from $770 million, and  profit of $23 million before taxes, up from a loss of $84 million during the same period last year.

The company took a hit during the pandemic, when most real estate activity came to a standstill, but has since weathered the storm well. The company attributed this performance to the strength and resilience of the US housing market, which shows little signs of slowing, despite the pandemic and the various other uncertainties.

Housing prices in the US have accelerated at the fastest pace in 30 years, with median prices rising as much as 20% YoY, and days on the market for sold houses hitting record lows.

Zillow expects significant tailwinds to boost performance over the next few quarters, with pent-up demand, low interest rates, positive demographic trends, and suburban migration creating strong demand for housing.

Zillow ended the quarter with total cash of $4.7 billion, and long term debt of $2.5 billion, with significant free-cash flows. We expect strong financial performance over the next few quarters, considering both the increase in demand, along with reduced expenses as the period of heavy investment comes to an end.

The company has a high valuation, but we are looking at a high-growth stock with significant upside potential. The stock rallied nearly 600% since March of last year, through this past February, when it reached its all-time high of $208.

The stock has since dropped by over 50% in the past few months. We believe this correction is the perfect opportunity to get in. Given the high analyst expectations over the next few quarters, and the company already being profitable, the stock is unlikely to stay within this range for long.

While Zillow has come a long way in the last year, we argue that it was profoundly misunderstood a year ago — and is still imperfectly appreciated. If anything, our projections of what this company is worth are on the modest side. After all, housing is booming. It's time Zillow joined the party.

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