What's the Good News for Zillow?

In this episode of MarketFoolery, host Chris Hill is joined by Motley Fool analyst Bill Mann to discuss Zillow's (ZG 0.05%) (Z 0.11%) popping 16% on a strong fourth-quarter report and a heated-up housing market. Also, Uber (U 0.13%) loses less money in the fourth quarter than expected. Bill analyzes those stories as well as the global shortage of semiconductor chips.

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This video was recorded on Feb. 11, 2021.

Chris Hill: It's Thursday, Feb. 11. Welcome to MarketFoolery. I'm Chris Hill. With me today, the one and only, Bill Mann. Good to see you, my friend.

Bill Mann: How are you?

Hill: I'm well, despite the fact that we are going to be talking about a global shortage. I am not going to say a global shortage of what, we will get to that and we will get to the latest results from Uber. But we're going to start with housing, specifically Zillow, which is wrapping up its fiscal year with the most profitable quarter in company history and we'll get to other things including their guidance but, I think that headline alone is part of why shares of Zillow were up 16% this morning.

Mann: Sixteen percent on the back of what has been a really good year for Zillow stock. Zillow and Redfin, which isn't exactly in the same business but it's definitely in the same neighborhood. They have had spectacular years. I have to go back, and I hate doing this, because I hate giving Tom Gardner credit, but Tom Gardner was so early on Zillow as being a business that is well-suited to how we're going to be shopping in the future and they are spot on. They came in with revenues of $789 million. Great geographic dispersion. They've obviously benefited from the in-migration. They've obviously benefited from the fact that people have really gotten to the point now where they're moving out of cities or they're moving to places more out of desire rather than economic necessity. But yeah, in all ways a really great quarter for them and I think that this is just the beginning for Zillow.

Hill: Certainly they indicated as much in terms of their guidance, because their revenue guidance for 2021 was definitely upbeat and --

Mann: That was hot.

Hill: It was hot and so was the housing market. Rich Barton, the CEO, was talking about what he referred to as the high velocity market. Just to put one set of numbers around that, this past December, on average, existing homes sold in 17 days and a year prior the average was 42 days.

Mann: Even the ugly houses in our area are getting sold.

Hill: I think that this is one more economic data point that is grist for the mill, for people who are banging the drum of the stock market being overheated. Obviously, the housing market is not the stock market and vice versa, and yet I can understand, particularly for people who are involved in it. I'm sure you know at least a couple of people we work with, a couple of people who are in the process of trying to buy a home. Some of the stories I'm hearing are borderline crazy.

Mann: Yeah, they're a little bit horrifying, and here's the thing about it. We love businesses that go in and they change the way commerce is done in an already huge market. That's the Zillow story. The housing market itself will remain cyclical, but I have a hard time seeing that the way houses will be sold is going to go backwards rather than forwards. Even if they are still very tightly geared to a market that has cyclicality to it, it doesn't necessarily mean that Zillow's future isn't absolutely spectacular. One of the things that I think is going to happen is that at some point, we're going to manage to get housing titles onto the blockchain. The process of buying and selling a house, which right now when you think about it, is so barbarian. But a company like Zillow, they're going to be able to have a button on their side, like would you like to buy this house? It's done. Do you have the money? But right now, there are so many elements of the housing market that are so inefficient that are going to be solidly solved by technology, I'm absolutely confident in it.

Hill: Uber's fourth-quarter loss was a little bit smaller than expected. Shares of Uber are basically flat today, but the stock is up more than 50% over the past 12 months. That's one of the more astonishing performances. [laughs] If we're ranking, what's more surprising? Cloud stock up 1,000% over the past year, I think I'm tempted to go with shares of Uber up to 50% over the past year.

Mann: It turns out that they lose money moving people that if they move less people that works out.

Hill: Yes. [laughs] Exactly, well. Take it in any order you want. We can talk about the future of Uber because they're -- things seem to be moving in the right direction for them economically, both here in the U.S. and around the world. But I'm also curious about your thoughts around the strategy they're pursuing versus the strategy that Lyft is pursuing. But in terms of Uber itself, where do you see this business right now?

Mann: Well, they are still massive, I'm making a little bit of a joke. If you lose money moving each person than if you move less people, that ought to be better. But it actually shows through the bottom line. Uber does two really main things. They move people and they move food. The food business is, in some ways, absolutely -- and you can look at companies like DoorDash and you see the same exact factors have come to come to bear. It doesn't really surprise me that Uber itself, that the stock has done that well. But their net loss of $6.7 billion for 2020, which is down from 2019. The thing that I wonder about, there are two elements for all of these companies. One is ubiquity, and then two is any type of customer loyalty. I don't happen to think that there is customer loyalty for food delivery. I have not come to believe it yet, maybe with some of the rewards programs that are coming in, but again, those are costs. Their business plan has always been basically starving out competition until you can price the way that you want to price and I think that that's still coming. It's not yet proven. But again, 2020 and moving into 2021, the measurement period that we're talking about was really truly unique. Please tell me 2020 was unique.

Hill: I really hope it was. What do you make of it? We essentially have, for all intents and purposes, a duopoly when it comes to ridesharing in the United States. We have Uber and we have Lyft, and Lyft has made it very clear they are not interested in food delivery. They are not interested in alcohol delivery, as Uber just made the acquisition of Drizly.

Mann: Yes.

Hill: Obviously, investors can buy shares of both and therefore you can bet on both horses in this race. Am I wrong to think that we're going to have a clear winner?

Mann: I think that it is more the case that you shouldn't necessarily think of Uber and Lyft as being direct competitors. The CEO, Dara Khosrowshahi, basically has described Uber's business as being the 'bring it to me' economy. That's not necessarily what Lyft is trying to do. Lyft is trying to be as efficient as possible in getting people from point A to point B. Whereas Uber is looking to move into various areas. The folks who are at Uber I think are very smart, and they are looking for gains on scale, because you end up managing all of these different infrastructures on a very similar process. This is still very much $6 billion in losses with a business that shrank 14% in 2020. This is still very much a bet. This is one of those companies where, if we were to jump into the time machine and we jump out five years from now, and you were to tell me that Uber's a $200 billion company, or you were to tell me that Uber has gone yahoo, I really honestly would not be surprised with either outcome. I know it's not great to say, I don't know, but I really truly, with Uber to me, is one of the most confounding companies that trade in the U.S. right now.

Hill: Quick programming now before our final story, our guest on the Motley Fool Money radio show this weekend, David Gardner.

Mann: How did you get him? That's a big ball.

Hill: Every once in a while.

Mann: His people got back to you?

Hill: We come through with a big name guest, and in the world of investing. Look, I don't know who the guests are on Bloomberg Radio this weekend. It ain't David Gardner, we got David Gardner.

Mann: That's true. I make fun, but it's certainly not because every time David Gardner comes on he really says something incredible. That will be a wonderful conversation.

Hill: Consulting firm by the name of AlixPartners says the automotive industry stands to lose $60 billion in revenue this year due to a global shortage of semiconductor chips. Walk me through this. There are a few things I want to get to in the story.

Mann: It's a big number.

Hill: It is a big number, and I know that we've seen the COVID pandemic disrupt all manner of supply chains. It shouldn't be a surprise, I guess, that semiconductor chips are one of those supply chains. Let me start here. Is this contained to just the automotive industry?

Mann: No, it's actually across the board, in some ways. Anybody who's a technologist is going to start shaking their fist as soon as I say this, but in some ways, the process of making a semiconductor chip is a little bit fungible. What happened in 2020 is that demand for personal computer products just went through the roof as people made the shift to studying at home, working at home. That shift was not particularly predictable. It definitely did not match with the cycle that it requires to increase demand among chip manufacturers. The other issue is that because the models -- and this is an area where the U.S. economy and the global economy, to some degree, is a little more fragile than we might have thought. it doesn't have the same level of resiliency that we might have thought, is that so much of chip production has been outsourced over the last decade that it was really hard for the chip companies who are in some ways customers to their suppliers, to say, I need you to bring it up 50%, because everybody was hitting them, the actual producers, at the exact same time.

Hill: When you look at this, I remember a conversation we had over a decade ago. As our conversations tend to be, it was over coffee, but one of the things you said to me was that, when you read the news, unless you're reading specifically with intent, you're looking for how North Carolina did in the game last night or something. If you're just browsing news, you tend to read the news with your investor glasses on. Like, I'm reading this story about housing. Who do I think stands to benefit? Who do I think stands to be hurt by this? When you look at this story and the headline of global shortage of semiconductor chips, this is what this consulting firm thinks is the impact just for the automotive industry. Are there either industries or companies that you look at and you think, I think, I can hazard a guess at who stands to benefit from this or is there no benefit?

Mann: I don't know that there is. Obviously, it is very beneficial. If you were to talk about problems for companies, having a supply issue versus a demand issue, you would take a supply issue every time. The deficit in semiconductors right now is even impacting companies that you would not expect, like Qualcomm or AMD, and you think, well, they actually make semiconductors.

Hill: I was going to say.

Mann: No, they assemble them. They don't necessarily make all that they use. I think ultimately you've got to look at the big producers like Taiwan Semiconductor and say that the fact that we have had this shift means that there's going to be a benefit and it's going to accrue largely to them, but because you're talking about really the part of this market that is in some ways only driven by just simple demand. Who's going to benefit from this is not as clear as I would hope it would be. When you're talking about the commodity component of the market is what I'm trying to say.

Hill: What do you think is the next shoe to drop here? What is the next, whether it's from an industry, whether it's from an industry leader, a CEO coming out and commenting on this? What should folks be looking for in terms of where this story goes from here?

Mann: Think about where this is coming from. This is coming from the automotive industry, and this may be another way in which Tesla has completely disrupted its competitors. I can almost guarantee you that, if an $800 billion company or $1+ trillion company like Apple gets in touch with the manufacturers, they're getting their supply. I think that this is probably something that is impacting the smaller players much more so than it is the larger ones. In a lot of ways you think about who's not complaining here, it's the big guys.

Hill: Bill Mann, always good talking to you. Thanks for being here.

Mann: Thanks for having me, Chris. I enjoyed it.

Hill: As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. Show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. Remember the market is closed on Monday. We'll be back on Tuesday.