ZG - Embedded Expectations Analysis - 2021 10 27
Zillow Group, Inc. (ZG:USA) currently trades near corporate averages relative to UAFRS-based (Uniform) earnings, with a 23.5x Uniform P/E. At these levels, markets are pricing in expectations for profitability to stabilize, but management may have concerns about Zillow Offers, Zillow 360, and overall executional constraints.Specifically, management may be overstating the overall potential, unit economics quality, and demand for Zillow Offers. They may also be overstating the potential of Zillow 360 and their comparability to typical e-commerce companies. Moreover, management may lack confidence in their ability to grow their market share of transactions, capitalize on broad offline-to-online trends, and overcome executional constraints amidst their rapid growth. Furthermore, they may be exaggerating their secular growth outlook and the remaining growth potential of the Premier Agent (PA) business.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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