Zillow ($Z) Weakness Coming?


I have been a bull on Zillow ($Z) since the summer of 2013 (read here) and watched the stock soar from $90 to $160 in less than 12 months. Being bullish on a growth/momentum  stock like Zillow ($Z) requires one to dig a little deeper to find value, as those using  typical metrics usually find themselves on the sidelines and miss out on a big run .

Some of the metrics I used to back my bull case on Zillow , was the hot housing market, along with the continued user growth of Zillow's mobile app and website. I considered Zillow a disruptor in the Real Estate sector and as long as they continued to show huge growth, the companies fundamentals would catch up with it's lofty stock price. Unfortunately I feel like the trend has started to change, and Zillow's ($Z) growth has slowed enough to warrant a lower stock price.

Visits to Zillow's website seems to have plateaued since July, with Unique User Visits dropping from 84 million  to 72 million as of November:

Zillow MUU

Other sources like Alexa and Google Trends point to the same conclusion - less people are using the site. You can see the Alexa data I pulled in the spring, and compare it with today and see the drastic difference in the traffic:



Last but not least, was the November Existing  Home Sales number that came in at a 6 month low on Monday. Is it the start of a trend, or just a blip? It will be a few months before we have an answer, but I think it puts some pressure on Zillow ($Z).

The Housing market is typically slower in the winter, so some of the weakness can be explained, but a momentum stock like Zillow ($Z) is usually not given the same free pass that a mature company might be given.

I added some puts today and may look to continue to add puts for a move under $100 on Zillow($Z) in the coming weeks.

Zillow 12-23-14

Happy Trading!

- JB

JimmyBob (Scott)has been trading equities for over 15 years, a majority of which were OTC micro-cap stocks. He started trading high risk stock options over the past 7 years, and has proven winning trades in excess of 15,000%.

As one of the Co-Founders of optionmillionaires.com, Scott enjoys sharing his knowledge with other investors through timely blog posts, daily watch lists in the forum, weekly webinars, and helpful advice within the chatroom.

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