Zillow Group, a prominent player in the real estate sector, is actively leveraging its advanced software and service initiatives to unlock significant revenue opportunities, amidst a backdrop of declining mortgage rates that bode well for its foundational brokerage business. According to analysis from Wedbush Securities, these developments position the company favorably in a competitive market landscape. Wedbush has recently refined its revenue forecasts for Zillow, projecting that the company will achieve earnings of $2.54 billion in 2025, a considerable increase from its earlier estimate of $2.42 billion.
This estimate substantially surpasses the current consensus on Capital IQ, which anticipates $2.48 billion in revenues for the same period. Furthermore, Zillow's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is expected to reach approximately $678.9 million, significantly up from the brokerage’s previous assessment of $600 million. As highlighted by Wedbush analysts Jay McCanless and Brian Violino in their report, the integration of software and service offerings is playing a crucial role in Zillow's revenue performance.
They noted, "We believe the (software and services) offerings, along with Zillow's core brokerage revenue, have allowed total revenue to grow faster than the national existing home market for several quarters now." This indicates a strong trend where Zillow is not only keeping pace but also outstripping general market growth. For the fiscal outlook of 2025, Wedbush anticipates that Zillow's residential revenue, which inherently includes its software and service segments, will experience a robust growth rate of 17%, a notable increase from their prior expectation of a 12% gain.
Additionally, rental revenue is projected to grow at a commendable rate of 10%, surpassing an earlier forecast of 5%. The analysts observed, "Rental revenue growth consistently exceeded Wedbush's projections in the second half of 2023 and the first six months of this year." This consistent performance underscores the resilience and demand in the rental market, which Zillow is strategically positioned to exploit. Moreover, Wedbush analysts pointed out that the momentum in revenue, largely fueled by new rental listings, is likely to serve as a multi-year growth catalyst for Zillow.
With apartment construction nearing historic highs, the company is set to benefit from the ongoing demand in rental properties, optimizing its position within the real estate ecosystem. In terms of overall market conditions, mortgage rates have seen a decline from a peak of 7.52% in late April to a current rate of 6.11% as of September 12, as reported by Wedbush, using data from Mortgagenewsdaily.com.
The reduction in mortgage rates is anticipated to serve as a positive catalyst for Zillow's core brokerage operations, further enhancing its revenue prospects. Reflecting this optimistic outlook, Wedbush has upgraded its rating on Zillow’s stock from neutral to outperform and has significantly increased its 12-month price target to $80, up from the previous target of $50.
Currently, Zillow's stock is trading at $61.60, showing a change of +1.86 and a percentage change of +3.11 since the last evaluation. Overall, Zillow Group's strategic initiatives in software and services combined with the favorable market conditions present a promising outlook for the company as it navigates through the evolving real estate landscape..