An Acquisition of Zillow (Z) makes sense
You can debate whether or not the housing market is recovering until you're blue in the face, but here are the facts:
DR Horton (DHI), which happens to be the nation's largest home-builder, just beat earnings expectations by 225%.
Lennar Corp. (LEN), the nation’s second largest builder of homes, beat earnings by 100%. Backlog and total sales are up as well.
Existing home sales are on the rise, too.
Back in April, the National Association of Realtors reported its Pending Home Sales Index, which tracks pending sales of existing homes, rose 4.1% in March to hit a 23-month high. Year-over-year, the Index rose 12.8%.
In Q1, foreclosure filings in the United States fell to the lowest level since 2007, according to RealtyTrac.
However, both the housing bulls and bears have arguments. Bears will point to the number of houses still under water, and the fact that housing is still simply not affordable to most Americans who are out of work.
The Stock Masters think that the bottom is in. And even if it's not, home prices can be held down forever. That's why we think Zillow will be bought out in it's infancy.
Why a Zillow buyout?
Zillow is a game-changer in the real estate market. Zillow's database has more than 100 million homes, including homes for sale, homes for rent and homes not currently on the market. Individuals and businesses that use Zillow have updated information on more than 27 million homes and added more than 50 million home photos. Literally everyone who is looking for a new home is looking at Zillow. This is a fact. When the housing recovery comes, Zillow's traffic, revenue, and EPS are going to go higher. Much higher.
Zillow's market cap is currently just $900M. Facebook just bought Instagram, of all companies, for a cool $1 Billion Dollars. With the technology that Zillow has envisioned and built, I can't help but think that Zillow will sell for less that $2b.
The question is will Z shareholders even approve a buyout, when the company has such a promising future?
Zillow is a sophisticated technology company, and we don't expect a buyout to come from the Real Estate sector. We believe the buyout will come from a large technology firm:
The 'soft has $45B in cash in the bank and is looking for growth. Need we say more? The current hub for real estate with Microsoft is realestate.msn.com. Not much to look at, Zillow could spruce things up a bit.
Google: Google announced Real Estate listing in their Google Maps back in 2009. That lasted about 2 years until they shut it down due to low usage. Why? Because everyone was going to Zillow. If Google was to buy Zillow, think of all the synergies!
Yahoo (YHOO) has a footprint as well in Real Estate with realestate.yahoo.com, which posts articles from time to time with how-to information. Yahoo just sold its stake in Alibaba for$7.1B. What are they going to do with all that cash? It's looking more and more like Yahoo is going to make another run at growing the business. Acquiring Zillow would be a move in the right direction. They paid $5.7B for Broadcast.com back in '99, why not throw down $2B for Zillow today?
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