2023-11-09 13:22:21 ET
Summary
- Zillow reported better-than-expected Q3 results, with earnings per share of $0.33 and revenue of $496 million.
- Analysts have reduced their outlook for Q4, but remain optimistic about future growth in revenue and earnings.
- Bullish options bets suggest that Zillow's stock may rise above $43.33 by mid-August 2024.
Zillow ( Z ) reported better-than-expected third quarter results on Nov. 1, which got the stock to bounce a little in the days since, following a brutal decline over the past several weeks and months. The better results have someone betting that the stock will continue to rally and push higher by the middle of August.
Better Results
On Nov. 1, the company reported earnings of $0.33 per share, which were almost 50% better than estimates for $0.22 per share, while revenue beat estimates by just over 3%, coming in at $496 million. Also, adjusted EBITDA was better than expected, rising by $107 million vs. $86.2 million, with margins at 22% versus estimates of 17.8%.
Despite the better results, analysts aren't optimistic, and seeing earnings in the fourth quarter of just $0.11 per share, down from estimates of $0.19 per share. Additionally, estimates for EBITDA were slashed to $57 million from $73 million, while revenue estimates for the company have been cut and are now expected to be $447.7 million from around $460 million.
The reduced outlook is because the company's fourth quarter guidance calls for revenue of about $442 million and EBITDA of about $50 million. Still, analysts are optimistic about the future because estimates call for revenue to grow by 9% in 2024 and 12.8% in 2025 to $2.1 billion and $2.4 billion in 2025. Earnings are forecast to grow by 21.4% in 2024 and 36.4% in 2025 to $1.15 per share and $1.57 per share, respectively.
EBITDA also is expected to grow 2024 by 27% to $481.7 million and 33.2% in 2025 to $641.55 million. This leaves the company trading at 14.6 times EV to EBITDA, which is certainly at the lower end of the stock's historical range regarding valuation. It's certainly nowhere near the nosebleed valuation we saw when the stock was trading in 2020 and 2021 when the EV to EBITDA ratio was well above 100.
Options Suggest The Shares Rise Over The Next Several Months
Still, there were some bullish options bets on Zillow on Friday, with the open interest for August 16, 2024, $35 and $45 calls rising by 5,000 and 10,000 contracts, respectively, on November 6. The data shows that the $35 calls were bought for $8.33 on the ASK, while the $45 calls were also bought on the ASK for $3.95 per contract. This would imply that the stock would rise above $43.33 and $48.95 by the middle of August. These seem likely large bullish bets, too, with premiums of $4.1 million and $3.95 million, respectively.
Technical Down Trend
The chart for Zillow doesn't look great, with a broken long-term uptrend that started in October 2022 and the stock trading back to the lower end of the trading range. However, it has filled a technical gap at $35.75, which has acted as support over the past few trading sessions. Meanwhile, the stock appears to form a bullish divergence with the RSI, which has started to make a slightly higher low. Still, the RSI is trending lower and shows signs of breaking the downtrend, which may signal that a change in the broader trend has started. If the stock were to fall below $34, it would likely lead to a further decline to around $31, while an advance beyond $37 could lead to the shares breaking out and pushing higher to resistance around $42.50.
Technically, there appears to be a lot for this stock to prove, given the steep downtrend. However, if the fundamentals begin to improve, as analysts point out for next year and 2025, the stock could have an upside as the options bets imply over the longer term.
For further details see:
Zillow's Big Stock Decline May Finally Be Over