Zillow (Z): Potential Put Play on Bearish Momentum?

Zillow is a real estate company focused on 'reimagining residential real estate'. Its core product is its website and mobile apps, which provide tools for renters, buyers, sellers, and real estate professionals. A key feature is the 'Zestimate', an automated valuation model for home values. Zillow's target markets include renters, home buyers and sellers, real estate professionals, and mortgage borrowers. The company differentiates itself through its 'housing super app', an ecosystem of connected solutions for moving, and by offering an integrated transaction experience in 'Enhanced Markets'. It also provides software solutions for real estate professionals through brands like 'Aryeo' and 'Follow Up Boss' and aims to build a nationwide marketplace for renters and landlords.

Z's technical outlook is bearish, characterized by a pronounced downtrend over the past 90 days. The stock has declined from a high of $93.88 in mid-September to its current price of $73.02. The price is below its 21-day EMA of $75.27 and significantly below its 50-day SMA of $79.55, confirming the downtrend. The MACD is negative at -1.08, and trending further below its signal line, indicating increasing bearish momentum. The RSI of 47.02, although not yet oversold, suggests weakening buying pressure. The Stochastic Oscillator, with %K at 44.37 and %D at 39.43, also points to continued weakness. The ADX is low at 14.03, indicating a weak trend, but given the persistent downward price action, this suggests a continuation of the existing bearish trend rather than a reversal. The recent price action confirms a failure to sustain any meaningful rallies, reinforcing the likelihood of further declines in the short to medium term. The absence of a 200-day SMA further limits insight into longer-term trends, but the prevailing indicators strongly suggest a bearish outlook for Z over the next 1-3 months.

Zillow Group's MD&A presents a generally positive but nuanced picture. For the three months ended September 30, 2025, total revenue increased by 16% to $676 million, compared to $581 million in the prior year, driven primarily by increases in Rentals revenue (up 41% to $174 million) and Residential revenue (up 7% to $435 million). Mortgages revenue also saw a significant increase of 36% to $53 million. Gross profit increased by 11% to $491 million, although the gross margin decreased from 76% to 73%, attributed to increased lead acquisition costs from the Redfin partnership. Net income turned positive, reaching $10 million compared to a loss of $20 million in the prior year. Adjusted EBITDA increased 30% to $165 million. For the nine months ended September 30, 2025, net cash provided by operating activities was $296 million, a slight decrease from $306 million in the prior year. The company repurchased shares worth $438 million and settled the 2025 Notes for $419 million, impacting liquidity. Despite 'continued uncertainty surrounding the health of the housing market', the company expresses confidence that cash from operations and existing balances will be sufficient for ongoing activities for at least the next 12 months.

Zillow Group's Q2 2025 earnings call reflects a moderately bullish sentiment, underpinned by strong financial results and positive future guidance. CEO Jeremy Wacksman highlighted the company's 'strong Q2 results today, including continued double-digit revenue growth and positive net income.' Total revenue increased by 15% year-over-year, exceeding expectations, and the company is now 'expecting mid-teens revenue growth for the full year at the higher end of our previous 2025 outlook.' Rentals revenue growth accelerated to 36% year-over-year, and mortgages revenue was up 41%. CFO Jeremy Hofmann emphasized the company's cost discipline, which helped deliver $155 million of EBITDA. Looking ahead to Q3, the company expects revenue between $663 million and $673 million, implying a year-over-year increase of 14% to 16%. While acknowledging challenging housing market conditions, management expressed confidence in their ability to execute their strategy and drive growth, particularly in Rentals and Zillow Home Loans. The Redfin partnership is expected to be accretive to EBITDA in the second half of the year, further bolstering the positive outlook.

Z's financial performance presents a mixed picture. Revenue has grown from $529 million in Q1 2024 to $676 million in Q3 2025, indicating positive top-line momentum. However, profitability is inconsistent, with the gross profit ratio fluctuating between 0.726 and 0.773 across the reported quarters. Net income has been volatile, swinging from a loss of $73 million in Q4 2023 to a profit of $10 million in Q3 2025. Operating cash flow has remained positive, most recently at $105 million, which is a positive sign. However, the company's debt profile shows a significant decrease in total debt, going from $1.851 billion in Q1 2024 to $95 million in Q3 2025, suggesting improved solvency. Overall, while revenue is growing and debt has decreased, the inconsistent profitability and fluctuating net income warrant further scrutiny.

The company presents a moderately bullish investment profile based on its financial data. Revenue has shown positive growth, indicating increasing market demand or successful market penetration. The gross margin is healthy, suggesting efficient cost management in production or service delivery. A strong return on equity (ROE) signals effective utilization of shareholder investments to generate profit. The price-to-earnings (P/E) ratio suggests the stock is trading at a premium, but this could be justified by the company's growth prospects and profitability. A manageable debt-to-equity ratio indicates a reasonable level of financial leverage. The current ratio, being greater than 1, demonstrates the company's ability to cover short-term liabilities with its current assets, further solidifying its financial health. Overall, the combination of revenue growth, healthy profitability metrics, and a solid balance sheet makes the company an attractive investment for the next 12 months, although the elevated P/E ratio warrants careful monitoring.