Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, online real estate marketplace operator Zillow (ZG -0.69%) has received a distressing two-star ranking.
With that in mind, let's take a closer look at Zillow and see what CAPS investors are saying about the stock right now.
Zillow facts
Headquarters (founded) |
Seattle (2004) |
Market Cap |
$2.6 billion |
Industry |
Internet software and services |
Trailing-12-Month Revenue |
$133.0 million |
Management |
Co-Founder/Chairman Richard Barton CEO Spencer Rascoff |
Trailing-12-Month Return on Equity |
0.2% |
Cash/Debt |
$179.1 million / $0 |
Competitors |
HomeGain.com Market Leader Zaio |
On CAPS, 34% of the 517 members who have rated Zillow believe the stock will underperform the S&P 500 going forward.
Just last week, one of those Fools, All-Star JakilaTheHun, wroted that the Zillow bear case all boiled down to price:
Complete insane at nearly 20x revenues. Zillow is a rapidly growing firm and may have a bright future, but too many investors misunderstand the dynamics with the company. Zillow is not like LinkedIn (LNKD.DL) or Netflix (NFLX -3.92%). LNKD and NFLX both have high operating leverage, which means that for every dollar of incremental revenue, a very large chunk of that goes to profit. Z is closer to the other end of the spectrum, as it has to spend a considerable amount of money to generate each incremental dollar of revenue.
Given the dynamics with Z, it should sell closer to 3x-5x revenues. That's assuming you buy into the thesis that it's a high-growth company with a good future in the industry (which I think is reasonable, but it's still not a given). That would put its valuation closer to $15-$25; quite a bit below the current price of $75. I think Zillow is extremely overvalued right now.