r/valueinvesting
$Z: Time to bottom fish
Zillow's debt-free fee model drives rising EPS estimates, making its near-historic low EV an attractive bottom-fishing opportunity.
- Successfully exited iBuying, eliminating long-term debt and transitioning to a high-margin, pure fee/licensing business model.
- EPS estimates for 2026 have risen materially (from $0.50 to >$0.80 GAAP), with long-term potential of $3+ GAAP or $5 adjusted by 2030.
- Trading at an EV of $7B, near its historical low, despite the business being at its highest quality ever.
Despite the housing market situation, Zillow continues to grow.
In 2021, Zillow exited the business of buying and selling homes with its own balance sheet. This allowed the company to de-lever the balance sheet (no more long-term debt) and become profitable in 2025 as a pure fee/licensing business model.
The next 4 years should deliver steady EPS growth, something the company has never had even when the EV (enterprise value = mkt cap+debt) was over $30B. Today, the EV is $7B.
Earnings estimates for 2026 have risen materially so far this year but the stock has continued to wither. Estimates (GAAP, not adjusted) were $0.50 in the middle of last year. Now they are over $0.80. Looking to 2029-2030, it is not hard to see $3 or more. Using adjusted EPS, I can see $5.00 by 2030.
(If you want to understand the difference between adjusted and GAAP EPS, I recommend asking an LLM, but the tl;dr version is GAAP are the real, accounting pure EPS while adjusted backs out non-cash expenses of certain kinds which make the numbers higher. )
The business is now the highest quality it has ever been, trading at almost the lowest EV in the company's history.
The gap between Zillow's GAAP and adjusted earnings is mostly stock-based compensation. They run about $360M in annual stock grants. Against a $7B valuation, they are diluting shareholders by roughly 5% every year. Their buybacks of $400M last year barely kept the share count flat. That means the cash went to offset employee dilution rather than shrink the share count. It is a recurring operational expense, not a return of capital. If you treat that dilution as a real expense, the true free cash flow multiple is closer to 25 than the reported forward P/E of 14. Exiting iBuying made the balance sheet safer, but the equity dilution remains a high hurdle for the GAAP numbers.
What will drive earnings growth over the next 4 yrs?
I also think Zillow is a potential opportunity btw
How do you see it growing fast enough to justify a >120 P/E? I don't see that kind of growth being reasonable.
Equity on balance sheet looks good at first glance but assets are mostly Goodwill, so I'd be concerned about that equity figure.
Free cash flow looks a lot better but the addbacks are largely stock based compensation and depreciation and amortization, which are still meaningful.
Any thoughts?
Zillow just turned a profit after several years of decreasing losses. Three of the last four quarters negative earnings. That is the cause of the 120 PE Ratio. Forward PE Ratio is 14.
Trailing PE is meaningless when a business is inflecting from losses to profit. 10x 2029 earnings is hardly expensive,
I guess I don't disagree, just wondering what the driver of earnings growth would be. That part didn't seem clear.