Another Look At The Handy Zillow/Redfin Ratio
Jul11

Another Look At The Handy Zillow/Redfin Ratio

It's going to be worth keeping an eye on secondary names in the Ibuying space given the momentum that is taking place in the sector, led by Zillow. Have discussed Zillow extensively here in 2019. Most recently in a note titled "Here Is The Bottomline With Zillow At This Point In Their Business Cycle." The basic premise of the piece was that the markets have gone from skepticism about Zillow fully transitioning their business model to Ibuying to complete acceptance and love for the move. With that said, all Rich Barton has to do to keep the train moving is to continue gaining revenue momentum through the acquisition of homes. At the same time, their former bread and butter (Premier Agent) ad based business has to somewhat support the endeavor. In other words, the markets won't like Premier Agent revenue falling off a cliff. This is phase 1 of the transition of Zillow. In the phases that are to come in the quarters and years ahead, Zillow's inventory of homes will reach such a critical mass that it won't allow management to simply boost the share price in the same way they are being allowed now. The massive inventory that is to come will eventually freak the market out to an extent, creating urgency for management to come up with a creative means of capitalizing on being one of the largest homeowners in the country. This is a when not if type of dilemma the company faces. Where Zillow is currently within its overall business cycle, however, is the sweet spot. Their inventory of homes isn't scary yet. Their revenue growth can increase at a nice clip given the early nature of the concept. Competition hasn't yet figured out how to compete effectively with the 800 pound gorilla in the space. All good for now. Bringing us to Redfin. Today RDFN announced a partnership with the largest Ibuyer  - Opendoor, which is undoubtedly an urgent response by both companies to Zillow's increasing momentum. While RDFN has a lot of catching up to do to ever reach Zillow's dominance in the space, the primary question from an investor perspective should be whether RDFN has enough going for it to ride Zillow's wave higher over the intermediate to long-term? Today's move by RDFN partnering with Opendoor is an official embrace of the Ibuying model by the CEO of the company who has expressed some skepticism about the business model of purchasing and selling homes in the recent past, mostly because of the balance sheet risk. This is notable given his experience and voice in the space. With a total addressable market...

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Safe Haven Status Confirmed For Our Favorite Defensive Sector
Jun01

Safe Haven Status Confirmed For Our Favorite Defensive Sector

A couple weeks ago Zenolytics highlighted Single Family Rental REITs as being the perfect defensive sector in light of the torrential downpour taking place in the equity markets. As a test of our theory, with the S&P 500 down nearly 3% this past week, the two leading names in the sector and the stars of our report were basically unchanged in this week's trading. Not only that, both AMH and INVH look like they are begging for higher prices. It goes without saying that buying a portfolio of homes, fixing them up, renting them out and then rinsing, repeating this process ad infinitum is not a sexy endeavor. It's not SaaS. It's not Ibuying. It's not 5g microchips. But it works when the market sucks. And for the time being, the market does suck. While we are due to a nice bounce here, the fact that a bounce is about to take place doesn't necessarily vaccinate the market against further calamity in the form of excessive, directionless volatility that creates an Exorcist inspired 360 degree rotation to take place for the heads of investors. With that said, if you have sector like single family residential REITs that's treating you well right now, don't think the grass is greener elsewhere. Defensive, boring stocks just may be the way to go throughout the summer.   Zenolytics now offers Turning Points and ETF Pro premium service  Click here for details.   Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing. Information throughout this site, whether stock quotes, charts, articles, or any other statement or statements regarding...

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Time To Take Profits On Zillow
May22

Time To Take Profits On Zillow

We have no position in Zillow presently. However, for those who do, the time has come to rein in the gains. On March 17th, Zenolytics published an opinion on Zillow, succinctly describing how Zillow tends to outperform during the 1st half of any calendar year. "Tends" may be too soft a description. Zillow, on average, produces gains of 50% during the front half of calendar years going back to 2012. This tendency towards outperformance becomes all the more pronounced when rates plunge, as they have in 2019 to date. The fundamental thesis behind the trade has two pillars: Seasonality of real estate transactions heavily weighted towards spring and summer i.e. the first half of the year Low rates = cheap mortgages = attractive affordability for buyers By now, with the employment market having gone nuclear with record job growth, rates steadily withering and the consumer being jolly one would expect that home buyers would be stampeding to get the keys to their new house, especially as price appreciation has slowed or is declining in many of the hottest markets. Yet something is taking place. Existing home sales for April fell, coming in below expectations. This from CNBC: "Sales of existing U.S. homes fell 0.4% in April compared with March to a seasonally adjusted annualized rate of 5.19 million units, according to the National Association of Realtors. Sales were 4.4% lower compared with April 2018. That was the 14th straight month of annual declines." All the meanwhile, Zillow's primary publicly listed competitors in the space: RDFN, RMAX, RLGY are getting pummeled during May, with an average decline of 25% among the three. The one bastion of safety in the sector during May has been Zillow. There is no doubt that their Zillow Offers business is providing a much needed boost to revenues, even as losses continue to grow. The controversial nature of their Offers business has caused short sellers galore to barrel into the name, with short interest on Zillow coming in at 52 week highs as of the most recent data. CEO Rich Barton's outstanding ability control the narrative while shorts scream bloody murder with losses increasing has created a virtuous cycle of gains in the stock recently. However, once the stampede of covering ends, Zillow may be prone to some reversion back to its mean in the 30 range, especially as all of its peers are suffering an inordinate amount of pain in the face of a real estate market that certainly hasn't picked up as many thought it would this far into the spring buying season.     Zenolytics now offers Turning Points Premium service for unparalleled...

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The Handy Zillow/Redfin Trading Ratio
May20

The Handy Zillow/Redfin Trading Ratio

In March, Zenolytics highlighted Zillow as being one of the best equities to own during the first half of any calendar year, especially in years that saw interest rates decline as they have in 2019. Fast forward to two months later and Zillow is gathering momentum on the upside, running over critics of its Zillow Homes offering in the midst of rapid revenue acceleration. Fulfilling the promise of another stellar first half performance in 2019 seems the least of its concerns at this juncture. There are, however, variant perceptions that should be discussed not involving fundamental arguments of the future viability of being a market maker in residential real estate. One very simple indicator that tells of the extreme disparities in price for Zillow is the ratio in share price between Zillow and Redfin. There is one very simple caveat: If Zillow does truly heat up with Wall Street fully embracing their new business model then it will blow the doors off of any previous acceptable ranges in the ratio between Zillow and Redfin. This condition aside, under normal trading circumstances this gives an objective view of the values between two of the leading players in the quickly evolving "real estate revolution, brokers are inefficient" business model: Recently, Zillow's stock price has quickly accelerated while Redfin has languished despite reporting overall growth in their business. Over the next few months this ratio should continue to be observed as Redfin has a number of offerings that adequately create a competitive product to Zillow despite being a fraction of its overall size, especially in the IBuying market. A rotation at some point away from Zillow into Redfin may be warranted. Stay tuned.  ...

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