Zillow is down 86% from the 2021 peak (when it was significantly overvalued) and down 57% this year.
Here's my thesis on why it is undervalued.
1. Its model is changing. It used to be advertising-first, where the buyers would be connected with the sellers who paid the most. Now, it's connecting the buyers with the agents it thinks are the best, without any upfront payment, but taking a % as a referral fee. Choosing the best agents leads to more satisfied buyers. With this approach, it also earns more (as it can also offer its mortgage product, which is being resold).
2. The existing home sales are at \~4m/year (below the 5m average), yet, Zillow's revenue is growing. The growth in the biggest (in size) segment is explained by the first point and the mortgage, but part of the growth comes from the rental segment, as they're landing large operators as clients (this part is advertisement-related).
3. Restructuring is taking place. The operating profit in the last 12 months was \~$50m. In the next 12 months, it will be above $200m (my estimate, based on the H1-2026 profit excl. restructuring costs of $62m + the expected $75m in annual savings). The P/E multiple right now is 126x. With this, it'll compress to 32x.
4. There are \~$1b of non-operating assets (cash, short-term investments, deferred tax assets). The deferred tax assets aren't even on the balance sheet yet. When Zillow embarked on its flipping-homes adventure, it accumulated over $1.5b in losses. However, to recognize them as tax asset, they need to also demonstrate that they'll generate significant profits and eventually use these losses. I think this will happen in the next 12-24 months. The EV/profit multiple based on this will be closer to 27x.
5. I see this as a capital-light business that gives me exposure to the real-estate market. The 27x multiple seems high, but this is a company that is growing its revenue at 10%+ in what is considered a down market. The revenue will continue to grow as:
\- Property prices go up
\- Interest rates eventually decrease (or the buyers no longer deferred the decision to buy home), which leads to higher volume
6. Lastly, I do think Zillow is somewhat AI-proof. This is not a decision that people will delegate to an agent. Zillow already implemented its own conversational AI, allowing users to find their dream house faster. It's available to \~20% of users, and they spend 3x more time, 3x more requests for a tour, and 2x more applications.
My estimate: fair value above $35/share.
Full deep dive in written form: [https://thefinancecorner.substack.com/p/zillow-is-down-86-im-buying](https://thefinancecorner.substack.com/p/zillow-is-down-86-im-buying)
Full deep dive in video form: [https://youtu.be/xRJLGBvjzLo](https://youtu.be/xRJLGBvjzLo)
Feedback is always welcome!
