Tuesday, September 9, 2014

* Zillow (Z) - Six Charts to Challenge Any Conviction

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Z closed trading at $130.12, down 1.2% IV30™ down 1.0%. The Symbol Summary is included below.

Provided by Livevol

Disclosure: The hedge fund is short Zillow.

This is a quick note following some fundamental measures in Zillow (Z), some of which are: 
* Strikingly good
* Strikingly bad
* Strikingly consistent
* Strikingly correlated to stock price

At some point, very soon in my opinion, Z will reach a cross roads, and the stock will move with earnings.  For now, its moving with something else.

The stock chart is included below.

Provided by Yahoo! Finance

Easy enough... the stock has exploded up.  It's now off of its highs, but still a huge MOMO return. Now it's time for the financial measures...

Revenue (TTM) - Strikingly Good
Revenue growth has been incredible, rising from ~$30M (ttm) to now over a quarter billion dollars. Remember this chart, we'll see it again in bit with some more 'flavor.'

Total Assets - Strikingly Good
It's not just revenue that is exploding, but also total assets.  The firm now carries over $600M of assets on its balance sheet.

Gross Margin % - Strikingly Consistent
Z gross margin% has been consistent for quite some time and the level is very high.  As of the current period we're looking at gross margin % of ~ 85%.  That's phenomenal.

Operating Revenue / Operating Expenses - Strikingly Bad
This is one of my favorite measures, because it's so easy to understand.  A firm must earn more than $1 in operating revenue for every dollar in operating expense  in order to be profitable.  We can see Z was above that magical threshold line, and now has fallen well below.  The firm pays ~$1.10 for every $1 in revenue.

Net Income (Earnings) - Strikingly Bad... sort of
Z was showing a profit for several quarters, but has gone from a trailing twelve month net income high of ~$7M to now a loss of $15M.  This is "sort of" bad for two reasons:

1. Both numbers are small.
2. This firm is focusing on growth, so the bottom line will be sacrificed... for a while.

Total Revenue to Stock Price - Strikingly Correlated
The chart below shows us total revenue (blue) to stock price (orange).  For now the stock market is valuing Z on its revenue growth.  That will change at some point... and I believe that point is right around now.

This is trade analysis, not a recommendation.

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