Shelter-in-place orders are getting lifted across the country, but some habits picked up during the pandemic are here to stay. That's good news for Zillow (ZG +6.39%) and DocuSign (DOCU +4.95%), the leaders in their respective industries. Both should see a boost in the post-COVID-19 world.
Prior to the pandemic, consumers and businesses could easily sign documents digitally and purchase homes online, but it wasn't the only option. That all changed with the COVID-19 quarantine, forcing consumers and businesses to adopt digital services whether they liked it or not.
Demand may ease as the world returns to a new normal, but it likely won't evaporate, positioning Zillow, and DocuSign to grow in the world that emerges. According to a recent survey by PBS NewsHour/NPR/Marist, 65% of Americans polled think it will be six months or more before there is a return to a sense of normalcy. What's more, 77% of those surveyed are worried about a second outbreak.
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Zillow poised to win as online home shopping grows
The online real estate company stands to benefit twofold from the pandemic. A growing acceptance with online buying in general may spill over into real estate, particularly if there are more pandemic-forced shutdowns, playing directly into Zillow's strengths. After all, if you're going to purchase a home online, you'll want to work with a household name and a market leader, which Zillow has become. The online real estate company boasts 36 million unique monthly visitors; second-place Trulia, which is also owned by Zillow, has 23 million, and Yahoo! Homes is in third place with 20 million visitors each month.
The pandemic could also spur consolidation in the real estate market, with realtors hooking up with larger agencies to claw themselves out of the pandemic. During the great recession of 2008 and 2009, the number of real estate agents declined as the housing bubble burst. According to one report, the number of active brokers in Washington state alone fell 27% in 2009, compared to 2007. In California, the number of active brokers fell 35% from 2007 to 2014. If consolidation does ensue this time around, the big firms will have to compete aggressively for business, which means more ad spending may go Zillow's way.
On top of all that, Zillow is chasing more growth with its Flex service, in which top-performing agents get access to Zillow home buying leads without having to pay any up-front fees. Zillow gets a cut of the commission the agent receives from the transaction. Zillow is deferring immediate revenue in hopes of getting a bigger payout later. That could work in its favor as homebuying resumes again, particularly if house prices rise.
For the week ending June 12, Zillow said the median list price increased 1% compared to the previous week, and 4.2% year over year. Zillow's Premier Agent business, which includes Flex, posted year-over-year revenue growth of 11% in its first-quarter. Zillow said delayed revenue from Flex hurt the business segment's revenue growth by about 460 basis points. Excluding that, sales in the Premier Agent business would have surged nearly 16%.Keep in mind that a week's worth of data doesn't tell a full story, but it does provide a glimmer of hope that the peak season of homebuying may not be disappearing in its entirety.
That's not to say the tech stock faces completely smooth sailing. The COVID-19 pandemic has put a big dent in home sales, forcing Zillow in March to temporarily halt homebuying across the country. That's beginning to change for the better, but a full recovery will take a while. Earlier this month, Zillow announced that it's resuming homebuying, expanding into six new markets. All told, it's now purchasing homes in 15 different markets across the U.S.
The company also just said it's seeing home sales return to growth, with new listings up 17% for the week of June 12, compared to the prior week. For-sale inventory for the same period fell 2.6%, highlighting the pent-up demand the real estate market is beginning to see.
The recent good news out of Zillow may already be evident in the stock price, which is up more than 20% year to date. But it's still 18% off its 52-week high of $64.40. With the real estate market potentially returning to growth and online buying becoming more acceptable, Zillow's stock has more room to grow. That's not to say there couldn't be more pain to come if the economy doesn't recover once the stimulus benefits end, or if shelter-in-place orders are reinstated because of increases in COVID-19.
DocuSign dominates digital signatures
When it comes to closing deals, most transactions require in-person signatures or notaries, both of which disappeared during the pandemic. Enter DocuSign, the digital signatures company that came into the spotlight during the pandemic. By far the leader in the electronic signature market, controlling a 57.8% market share, DocuSign has seen a surge in demand for its digital services. With more than 600,000 paying customers and hundreds of millions of individual users, DocuSign has helped countless customers close business deals, and engage in other agreements online.
The need for digital signatures is expanding, not shrinking, as we embark on life after the pandemic. DocuSign recognizes that and is going after markets created because of COVID-19, including remote patient onboarding, distant learning, and digital notary services.
Outside of riding the pandemic with new services, DocuSign is focused on the cloud, recently launching Agreement Cloud, a suite of applications that cover all aspects of a deal. By expanding into the cloud, DocuSign can go after business customers, a growing but still a small part of its operations.
Recognizing that demand could dry up if people return to the old way of signing transactions, DocuSign has been expanding into other aspects of a deal through the Agreement Cloud, which boasts integrations with more than 350 third party applications. It also recently closed on its acquisition of Seal Software, which gives it the ability to automate several aspects of contracts as well as analyze risk and spot business opportunities for clients.
Those value-added services could increase the amount existing customers spend with DocuSign while enticing new customers it's way. They also helps it protect DocuSign's position as the first-place player in the market.
At the end of fiscal 2020, just 75,000 of the tech stock's 589,000 customers were businesses. But that portion has been growing. For its fiscal 2021 first quarter, customers with annual contracts valued at more than $300,000 jumped 46%. At just 473 customers, that's still a tiny portion of its client base. But the more corporate customers DocuSign gains, the more revenue the company can realize as clients begin to use other services.
"Typically, eSignature is the first step that many customers take on their broader digital transformation journey with us," DocuSign CEO Dan Springer said on the first-quarter earnings call earlier this month. "So from a financial point of view, we believe this surge in eSignature adoption bodes well for future agreement cloud expansion."
Just like Zillow, DocuSign's stock has been surging during the pandemic. Year-to-date shares are up nearly 100% But it's also below its 52-week high of $155.14. With so much growth ahead of it, it's more likely than not to set new highs.
In a post-COVID-19 world, some things will remain the same, but many others will be vastly different. Zillow and DocuSign, with their social-distancing-proof businesses, should do well in the new normal.
