2 stocks to buy that could dominate real estate transformation
The way people buy and sell homes is changing rapidly, the real estate market is in turmoil. Some consumers prefer to buy a home through an online transaction with a virtual agent – also known as the iBuying experience, and others want an in-person agent to work alongside them. As we have seen with the housing market this year, one thing will remain the same, people will buy properties. An industry like real estate can still be a solid long-term investment.
eXp World Holdings (NASDAQ: EXPI) and Zillow Group (NASDAQ: Z) (NASDAQ: ZG) have unique offerings that take advantage of the changing market demand for a digital experience. Although the strategies differ, the two companies have long avenues for growth ahead if they are successful. Investors should consider buying these two real estate disruptors and holding them for the next five years.
1. Zillow Group
Over the past year, people have searched online for the term “Zillow” more times than “Real Estate”, showing just how dominant the Zillow’s brand has become. While spending just 17.5% of its total Q2 2021 revenue on sales and marketing, this software-as-a-service company has built a strong brand known to create a convenient platform for consumers to ‘buy and sell houses. The company has achieved this through, among other things, iBuying, where customers can get instant deals on their homes.
The “Zestimate” – Zillow’s tool that rates people’s homes – is now seen as an official offer from Zillow to buy a client’s house, which has appeared to attract clients, generating $ 777 million in revenue per Zillow Offers. There were 3,805 homes purchased and 2,086 homes sold in the second quarter of 2021, doubling year-over-year purchases, leaving an inventory of 3,142 homes. The company is trying to gain market share in the iBuying space by funneling $ 450 million into the Zillow offerings, which are expected to continue to grow with more online home purchases. iBuying accounted for just 1% of all home purchases in the second quarter, with some urban areas reaching a 5% share.
The growing competition in the online real estate market has intensified. Red tuna (NASDAQ: RDFN) has become a fierce competitor, but it has a lot less website traffic and brand recognition than Zillow, which gives Zillow a solid competitive advantage. This moat is reinforced by its financial performance. Redfin sees itself as a discount broker that might appeal to some in the market, but its financial performance is paltry compared to Zillow. In the first half of 2021, the companies reported aggregate revenues of $ 740 million and $ 2.5 billion for Redfin and Zillow, respectively. The revenue generated led Redfin to report a net loss of $ 64 million and Zillow to a net profit of $ 62 million for that period.
Knowing that the two are vying for the iBuying space, the ability to invest more in the business would make or destroy who could conquer the market. Zillow appears to be the obvious choice.
Zillow’s shares have remained stable year over year, but its desirability has not changed. Zillow’s top website traffic – with over 2.8 billion second quarter website visits and its well-known brand and expansion into iBuying potentially give it a significant growth opportunity over the next five years. Today, Zillow is valued at 6x sales over twelve months, which might be a good time to buy.
2.eXp World Holdings
Some homeowners are reluctant to sell their homes without going through the traditional process, and eXp World Holdings is there for those clients. Being rooted in the online world, eXp has built an online brokerage company that boasts some of the best real estate agents out there. Having Virbela – a fully online workplace that eXp acquired in 2018 for $ 11 million, allows real estate agents around the world to help homeowners buy and sell their homes.
eXp has managed to attract some of the best agents in the world with unique offerings unmatched by its competitors. The company offers agents a generous 80/20 split of gross commission income (GCI) with a cap, while most brokerages like Keller Williams typically take 30% of an agent’s total GCI.. Once the agent reaches $ 80,000 in GCI, he gets 100% of what he earns through eXp, whereas many traditional brokerage firms do not have a cap for their GCI division.
Due to its incentives, eXp has brought the best agents to the platform. In the second quarter of 2021, eXp increased its number of agents by 87%, exceeding 58,000 agents. Bringing key agents to eXp paid off: eXp reached $ 1 billion in revenue in the second quarter, up 183% from a year ago. The company also reported second quarter net profit of $ 37 million, up 350% year-over-year.
Powered by its virtual platform, eXp could easily expand into the international market. eXp operates in 15 countries plus Hong Kong. In India and Mexico, the number of agents is increasing dramatically. The international real estate market has grown 60% since 2010, and as eXp integrates with emerging markets, the company could benefit from future market growth.
Shares of eXp have more than doubled in the past year, but the company is still trading at 2.1 times year-over-year sales, which is insanely cheap. With the international opportunity ahead of eXp, the stock is trading at relatively low levels.
One possible reason for the low valuation is eXp’s gross margin, it was only 8% in Q2 2021. This might not get investors excited, but that’s the price eXp is willing to pay for. see such solid results. growth. The rapid growth and international acceleration of eXp could allow the business to become the best place for homeowners who want the traditional experience of selling and buying a home.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.