Zillow Group Inc. is an online real estate marketplace company that provides information and services related to selling, buying, renting and financing homes through its platform, which is accessible through a website and mobile application. In 2018, the company introduced a new — and somewhat controversial — line of business, where it would begin speculating on homes. The company expanded rapidly and by 2021 owned approximately 7,000 homes. But the business was not profitable and Zillow reported losses of nearly $590 million in the second half of 2021, at which time the CEO, Rich Barton, announced they would cease buying houses. Since then, the company has struggled to consistently generate profits, but the Street’s expectations for the most recent quarter ended Sept. 30, reflect some optimism. The company guided to $150 million to $160 million in adjusted EBITDA, and the sell-side consensus is that the company will generate $105.6 million in adjusted net income, which would mark the most profitable quarter since the company’s founding. It seems the sell-side expects the company to build on that growth in FY2026 as well, anticipating ~30% year over year net income growth, and slightly more on an adjusted EPS basis as the company does have over $1 billion remaining in a stock buyback program, or ~5.8% of the current market capitalization. Improving results, assuming they are able to achieve them, creates significant potential support for the shares, particularly when combined with open market share buybacks. However, the residential housing market remains significantly challenged, pressured by short supply, low affordability, and stretched consumers. The company is expected to report third-quarter earnings on Oct. 30. When it reported earnings one year ago, the stock jumped almost 25%, but it has since fallen back to $60, rallied to the mid/high $80s before falling back to its current level of ~$70 per share. As I write this, one could sell the December 60/80 strangle for ~$4, or ~5.7% of the current stock price. A trade with breakevens roughly 20% higher and lower than the current stock price. Effectively, by selling that strangle, a trader takes the risk they would buy the stock at ~$56 per share, the lows of early November 2024, or sell the shares at $84, just 3.5% lower than the three-year highs the stock hit in September. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
